EU ESG regulation update: how might the omnibus simplification package change ESG reporting obligations under the Corporate Sustainability Reporting Directive (CSRD)?

Is increasing ESG regulation a threat to European competitiveness? 

Mario Draghi certainly thinks so.  In his 2024 report, The future of European competitiveness – A competitiveness strategy for Europe, he suggests that there are areas where the EU should be exercising “self restraint” and this includes in relation to the regulatory burden on companies: he says that 60% of EU companies see regulation as an obstacle to investment and 55% of Europe’s small- and medium-sized enterprises (SMEs) flag regulatory obstacles and administrative burden as their greatest challenge. 

His in-depth analysis and recommendations identify sustainability reporting and due diligence as a major source of regulatory burden, as well as a major compliance cost, full of duplications and inconsistencies, which is compounded by a lack of guidance for entities navigating the complex rules. 

Given that Mr Draghi was mandated by the European Commission to give his personal view on the future of Europe’s competitiveness, it is no surprise that on 8 November 2024, the European Council released the Budapest Declaration on the New European Competitiveness Deal, which acknowledged the need for a “simplification revolution” to drastically reduce the administrative, regulatory and reporting burden on companies, especially SMEs.  And the Commission committed to introducing concrete proposals on reducing reporting requirements by at least 25% in the first half of 2025. 

On the same day, Ursula von der Leyen announced that the European Commission will consolidate EU sustainable finance regulation by way of omnibus legislation.  She confirmed that the omnibus will address the large number of data points, thousands of them, required in sustainability reporting and duplication in reporting. The Omnibus legislation will likely amend the CSRD, CS3D and EU Taxonomy (and possibly other EU legislation) by means of a single instrument.  It is unlikely however to combine the legislation into one directive or regulation.

As it currently stands, it is not clear where this proposal will end up.  We understand that there is a lack of agreement between Commissioners whether to proceed with or freeze the omnibus.  Similarly there is no agreement as to how to amend the legislation – at Level 1 or Level 2.  Consensus will be needed to drive this proposal forward.

The details from the Commission as to the scope of the review are scant but we know that the omnibus proposal is on the agenda to be discussed at the Commission meeting on 26 February 2025 and that it will be discussed at the ECOFIN meeting on 21 January 2025.

How will sustainability reporting change?

The short answer is we don’t know yet.  Ursula von der Leyen’s speech on 8 November 2024 indicated that the omnibus package would remove duplication in sustainability reporting and reconsider the number of data points required. But indicated that they were not targeting changes at the substance of the reporting.

So companies should continue preparing for reporting under the CSRD for now.

Reducing the regulatory burden

But there are certain Member States and stakeholder groups who have made recommendations to change the entities in-scope for CSRD and the timeline for compliance.

• On 17 December 2024, four ministers in the German government wrote to European Commissioners requesting streamlining of the “bureaucracy”.  They suggested that there should be a limit to the extent that SMEs had to respond to data requests from those reporting under the CSRD, requesting that companies should not make requests of value chain participants before 2027.  It also called for the scrapping of sector-specific standards, a two-year delay on the application of the CSRD and an increase in thresholds for in-scope entities.
• The German Chancellor, Olaf Scholz, conveyed a similar set of requests in a letter he wrote to Ursula von der Leyen on 3 January 2025.  According to the EU’s list of Member States who have transposed the CSRD into national law, Germany has not yet implemented the CSRD.
• On 8 January 2025, a French auditing regulator made suggestions not dissimilar to those described above, asking for an increase in thresholds for in-scope entities and a postponement of reporting deadlines for non-listed SMEs but with a plea not to postpone sector-specific standards.  It still acknowledges that “While some of the criticisms levelled at the CSRD are legitimate, let's not lose sight of what's essential: establishing robust standards applying to the communication of economic players means having the common language needed to understand each other and thus be able to make the right decisions.”  A German auditing body has also sent suggestions to simplify the EU Taxonomy.

Delay and roll-back benefits those who have not prepared

Although concerns for SMEs and of competitiveness were cited as the main reasons to roll-back the CSRD, changes to the CSRD are not universally supported by corporates. Those entities which have invested in reporting ahead of the upcoming deadlines are being put at a disadvantage versus those who have left investment till much later. 

• In Germany, an organisation representing SMEs has been less enthusiastic about the proposed changes, citing uncertainty as a concern for most company leaders. 

• A number of French corporates have also come out in support of the scope of the existing sustainability reporting regime.

Let’s not forget that the reason sustainability reporting was introduced was to provide comparable, robust reporting on sustainability because investors need this information for the entities with whom they do business.  Arguably those who do publish annual reports compliant with the CSRD will find it easier to find financing. It also serves to mitigate greenwashing risk and help entities and Member States to advance the economy towards net zero in line with European environmental goals. 

What can we expect next?

On 21 January 2025, the Polish Presidency has included the omnibus on the agenda for discussion between European finance ministers – the Presidency Issue note states that the European “regulatory environment needs an urgent fix as it undermines the competitiveness of the European economy”.  The Polish Presidency has also included competitiveness and regulatory burden on its work programme for the coming semester. We hope more detail will be available after this meeting.

On 26 February 2025, the omnibus proposal is due to be discussed at the Commission meeting.  We hope to have more detail about how the Commission will proceed then.  Given that many Member States have transposed the CSRD into national law following the deadline for transposition on 6 July 2024, we expect the Commission to move quickly and decisively to minimise uncertainty for entities in-scope for the CSRD.

Given the short timetable, if you have concrete examples of areas of the CSRD, CS3D, EU Taxonomy or other regulation where there is duplication or contradiction, now is the time to collect these examples together and share them with industry groups and/or the European Commission directly ahead of possible public consultations on the omnibus. 

We remain poised to update you as soon as we hear anything concrete from the Commission or official bodies.

Our global Sustainable Finance & Investment group brings together a multidisciplinary global team that provides clients with best-in-market support. We are following developments relating to the SFDR and in ESG regulation more generally, so please get in touch if you would like to discuss.

Stay ahead with timely curated developments, insights and thought leadership on ESG regulation with our ESG Regulatory Alerts tool. 

This note is intended to be a general guide to the latest ESG developments. It does not constitute legal advice.

Authored by Rita Hunter and Emily Julier.