Stockholm (NordSIP) – After much anticipation, the European Commission (EC) formally proposed a new package of simplified EU sustainability rules, specifically pertaining to the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), the EU Taxonomy and the Carbon Border Adjustment Mechanism (CBAM).
The reforms to these regulations are designed to respond to rising concerns about European competitiveness. However, fears have emerged that the Omnibus effectively shreds the hard-fought achievements of the EU’s sustainable regulatory framework. The proposals were received with considerable trepidation by civil society groups who have expressed concerns that these changes dilute the existing regulations’ efforts to protect corporate governance, human rights and the environment.
The Draghi Competitiveness Report and Budapest Declaration
In September 2024, ex-Italian prime minister and ex-President of the ECB Mario Draghi delivered a report on the competitiveness of Europe. His assessment was alarming.
“Europe has been worrying about slowing growth since the start of this century. Various strategies to raise growth rates have come and gone, but the trend has remained unchanged,” Draghi warned in the foreword to the report.
“[In the past] the EU benefitted from a favourable global environment. (…) [But now,] the previous global paradigm is fading. The era of rapid world trade growth looks to have passed, with EU companies facing both greater competition from abroad and lower access to overseas markets. Europe has abruptly lost its most important supplier of energy, Russia. All the while, geopolitical stability is waning, and our dependencies have turned out to be vulnerabilities. (…) Europe cannot become more productive, we will be forced to choose. We will not be able to become, at once, a leader in new technologies, a beacon of climate responsibility and an independent player on the world stage. We will not be able to finance our social model. We will have to scale back some, if not all, of our ambitions. This is an existential challenge,” Draghi continued.
“(…) The global decarbonisation drive is also a growth opportunity for EU industry. The EU is a world leader in clean technologies like wind turbines, electrolysers and low-carbon fuels, and more than one-fifth of clean and sustainable technologies worldwide are developed here. (…) Decarbonisation must happen for the sake of our planet. But for it also to become a source of growth for Europe, we will need a joint plan spanning industries that produce energy and those that enable decarbonisation such as clean tech and automotives,” Draghi added.
In November 2024, and in response to the Draghi report, European Commission (EC) President Ursula von der Leyen published the Budapest Declaration, a 12-point commitment by the EU to “to ensure our common economic prosperity, boost our competitiveness, making the EU the first climate-neutral continent in the world and ensuring the EU’s sovereignty, security, resilience and global influence.”
As part of the declaration, von der Leyen explained that the EC would propose an EU Omnibus sustainability regulation in 2025, streamlining EU regulation and cutting red tape to increase the bloc’s competitiveness. “We will for example come with a so-called omnibus. Omnibus [legislation] takes from many different files topics to reduce bureaucracy and reduce reporting burdens and put them in one omnibus that we will propose as the Commission and guide through the parliament and the Council. (…) We will look, for example, at the triangle of the Taxonomy, CSRD, CS3D,” von der Leyen argued.
This week’s proposals are the concretisation of these efforts.
Proposed Changes
The EC’s latest proposals take a multi-prongued approach, focusing on each of the relevant regulations. The most salient change to the CSRD removes around 80% of companies from the scope of the regulation by focusing its scope on companies with at least 1,000 employees and either €50 million in annual turnover or a balance sheet total above €25 million. The proposal will delete the empowerment for the Commission to adopt sector-specific CSRD standards. The proposal also postpones by two years (until 2028) the reporting requirements for companies currently in the scope of CSRD and which are required to report as of 2026 or 2027.
For companies within the future CSRD scope (large companies that have more than 1,000 employees) with a net turnover up to 450 million, the Omnibus proposal envisages voluntary Taxonomy reporting. This will reduce the number of companies that are obliged to report their Taxonomy alignment.
The Omnibus proposals also seek to exempt small importers from CBAM obligations, mostly SMEs and individuals, who import small quantities of CBAM goods. This is accomplished by introducing a new CBAM cumulative annual minimum threshold of application worth 50 tonnes per importer, which would eliminate CBAM obligations for approximately 182,000 or 90% of importers, while presumably still covering over 99% emissions in scope.
The EC estimates that the Omnibus package could generate total savings in annual administrative costs of around €6.3 billion and mobilise additional public and private investment capacity of €50 billion to support policy priorities.
“No more valuable than the paper they’re written on”?
Unsurprisingly, EU officials were buoyant about their latest proposals.
“Simplification promised, simplification delivered! We are presenting our first proposal for far-reaching simplification. EU companies will benefit from streamlined rules on sustainable finance reporting, sustainability due diligence and taxonomy. This will make life easier for our businesses while ensuring we stay firmly on course toward our decarbonisation goals. And more simplification is on the way,” von der Leyen said on this occasion.
“By simplifying CBAM, we’re empowering companies to reduce their carbon footprint without compromising their competitive edge. While exempting around 90% of companies from CBAM reporting, we still ensure the capture of over 99% of emissions. This marks the first step in a broader CBAM review,” Wopke Hoekstra, Commissioner for Climate, Net Zero and Clean Growth, added.
The European Fund and Asset Management Association (EFAMA) was also supportive of the proposal, welcoming the decisions to maintain double materiality assessments, avoid sector-specific ESRS reporting and delete the review clause for financial services within the CSDDD.“The current simplification drive by policymakers is an opportunity to ensure cohesion and efficiency across all sustainability regulations. Harmonised definitions and consistent reporting requirements would allow corporates and investors to ‘speak the same language’. This is why it is crucial that any changes made to corporate reporting under CSRD, including the “opt-in” regime for EU Taxonomy reporting, are also reflected in financial sector reporting when the European Commission reviews the SFDR,” Tanguy van de Werve, EFAMA Director General, commented.
EFAMA did, however, see some room for improvement, noting that “while delaying CSRD reporting and introducing a partial ‘opt-in’ regime for EU Taxonomy reporting is understandable, it does leave asset managers waiting longer for the corporate ESG data needed to make sustainable investment decisions. In the interim, investors will have no choice but to continue to rely on ESG data and ratings sold by third-party providers.”
Opponents to the reforms include Amnesty International, WWF and faith-based organisations.
“Confronted with growing recognition of the many human rights abuses taking place in the value chains for everyday products, and corporations’ impact on worsening climate disasters, the EU should look to raise standards, not weaken them. The sheer volume and scope of proposed changes to these vital laws are completely at odds with Europe’s green ambitions and its climate action commitments. (…) If implemented, the proposed changes could render these instruments no more valuable than the paper they’re written on. Particularly alarming are the amendments envisioned to civil liability provisions, due diligence obligations, and climate transition plans, among others,” Amnesty International’s Secretary General, Agnès Callamard, warned.
“The Commission’s flawed omnibus process was designed to culminate in a reckless proposal that threatens the commitments made and work done to achieve the EU Green Deal. The lack of transparency, the rushed development of the package, and the exclusion of civil society from the conversation prove that President von der Leyen’s priorities lie with the short-term gains of powerful corporate lobbyists, at the expense of Europe’s long-term well-being,” said Sebastien Godinot, Senior Economist at WWF European Policy Office.
“This proposal induces considerable uncertainty for States that have already commenced their transposition process. Moreover, many companies are already preparing for compliance with these regulations, and are demanding clarity and guidance from the Commission, in order to establish a level playing field and avoid chaos. Most importantly, the CSDDD is a key instrument for protecting the fundamental rights of individuals and communities affected by business operations, preventing corporate human rights and environmental abuses, and defending our common home. Therefore, its implementation should not be delayed,” the members of Coopération Internationale pour le Développement et la Solidarité (CIDSE) stated in a joint letter. Signatories to the letter include Tomi Järvinen, Executive Director of Finn Church Aid (FCA), Eva Ekelund, Deputy Director at ACT Church of Sweden, and Maria Nyman, Secretary General of Caritas Europa.
“Today’s changes proposed by the European Commission are nothing short than a gutting of the Corporate Sustainability Due Diligence Directive (CSDDD), giving reckless corporations a free pass to operate without consequences. This proposal would take us back to an era of merely voluntary measures — where human rights abuses and environmental destruction continue unchecked, with no prevention, no accountability, and no justice. By restricting due diligence to direct suppliers, companies will have no obligation to identify risks and potential harms beyond their immediate contracts – even if human rights and environmental abuses are widely reported and concentrated towards the bottom of supply chains, where raw materials extraction and subcontracted labour involve the most abuses,” said the the International Federation for Human Rights (FIDH).
“This is not simplification. This is deregulation. The Commission claims to be cdeputy utting red tape but is in fact gutting its human rights legislation,” said Isabelle Schömann, Deputy General Secretary of the European Trade Union Confederation (ETUC). Contrasting the accelerated pace of the Omnibus reforms with the long consultation process that led to the creation of the Taxonomy, CSRD and CSDDD, Schömann argued that “As well as being inefficient, going back on the results of this process is deeply undemocratic. (…) This Commission must change direction quickly or it will lose the support of workers and their trade unions.”
The Way Forward
On the same day, the EC also presented its plan for a new Clean Industrial Deal for 2026, which foresees a number of proposals to strengthen the Innovation Fund, the creation of an Industrial Decarbonisation Bank, and additional revenues from parts of the ETS as well as the revision of InvestEU. This would hopefully result in an €100 billion increase in funding, based on available funds in the Innovation Fund, including an additional €1 billion in guarantees under the current Multiannual Financial Framework. A planned amendment of the InvestEU Regulation could also increase InvestEU’s risk bearing capacity. This will mobilise up to €50 billion in additional private and public investment, including in clean tech, clean mobility and waste reduction.
Meanwhile, the Omnibus proposals will now be submitted to the European Parliament and the Council for their consideration and adoption. The changes on the CSRD, CSDDD, and CBAM will enter into force once the co-legislators have reached an agreement on the proposals and after publication in the EU Official Journal.
In line with the Communication on simplification and implementation published on 11 January 2024, the Commission invites the co-legislators to treat this omnibus package with priority, in particular the proposal postponing certain disclosure requirements under the CSRD and the transposition deadline under CSDDD, as they aim to address key concerns identified by stakeholders.
However, no such process seems to be required for changes to the Taxonomy, most of which would be applied in detail by amendments to the current delegated acts under. According to the EC, these amendments to the Taxonomy Regulation “will be adopted after public feedback and will apply at the end of the scrutiny period by the European Parliament and the Council.”
