On February 26th, the European Commission unveiled a series of proposals designed to reduce the regulatory burden associated with sustainability laws within supply chains, collectively known as the Omnibus Package. This package includes revisions to the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD). While these proposals aim to address the regulatory challenges faced by businesses, there is concern that the changes could discourage investment from companies that had already begun preparations based on the previous versions of the regulations. In other words, legal certainty remains essential to maintain strong support from businesses.
Legal Certainty and Social Responsibility Goals
While the simplifications are welcome, it is important to ensure that these proposals continue to align with the overarching social responsibility goals. The simplifications should not serve as symbolic measures with limited impact. Legal clarity is crucial in maintaining the support of companies, as regulatory changes could cause confusion and disrupt progress made towards sustainability.
For several months, the CSRD and CSDDD have been under scrutiny, with concerns that they could negatively affect European competitiveness. While European Shippers’ Council (ESC) fully supports the EU’s sustainability goals, they have raised concerns about the unnecessary complexity, lack of consistency, and administrative burden these regulations impose. In response to these issues, the Omnibus Package aims to reduce administrative burdens by at least 25%—a reduction that would save approximately €6.4 billion annually, with a 35% reduction for small and medium-sized enterprises (SMEs).
CSRD: Simplifications and Key Changes
The CSRD, which governs corporate sustainability reporting, has undergone significant revisions as part of the Omnibus Package. The new proposals narrow the scope of the regulation, exempting many businesses that were previously subject to its reporting requirements.
Exclusion of Smaller Companies: Under the new rules, only the largest companies (those with more than 1,000 employees, €50 million in turnover, or €25 million on the balance sheet) will be required to comply with the reporting requirements. Listed SMEs and financial institutions are no longer included in the CSRD scope, easing the regulatory burden for these groups.
Voluntary Reporting for Smaller Companies: Companies not covered by the CSRD may opt for voluntary reporting (VSME), meaning they will not be pressured by customers or financial institutions to provide more information than the standard requires.
Limiting the Number of Data Points: The Commission intends to significantly reduce the number of data points companies are required to report on, although the exact details are yet to be determined.
Sector-Specific Standards Scrapped: Originally, sector-specific standards were meant to supplement the cross-sector reporting requirements. However, these standards will now be discarded, simplifying the overall reporting process.
Delay for Reporting Companies: The Commission proposes a two-year delay for companies that were set to begin reporting in the next cycle. This extension will give businesses more time to adjust to the updated regulations.
Limited Assurance Audits: The proposal foregoes the requirement for reasonable assurance audits, which are more in-depth, in favour of limited assurance audits. The latter requires less stringent investigations, which could reduce compliance costs for businesses.
Positive Developments and Remaining Concerns
The Commission’s proposal introduces several positive changes, including the reduction of reporting data points and the two-year reprieve for certain companies. However, ESC believes that exempting many companies from the CSRD entirely is unnecessary, as the administrative pressure would already be reduced through the limitation of data points. Additionally, the option for voluntary reporting remains valuable, but many companies might feel disappointed that their investments in sustainability reporting will no longer give them a competitive advantage in the market. The momentum for sustainability, which had risen to board-level priority in many companies, may now begin to fade.
ESC also fears that the proposed adjustments will create blind spots in the supply chain, particularly in countries of origin, as the revised code of conduct contract requirements will have limited enforceability outside the EU. The proposal’s approach to dual materiality analysis could provide better guidance for due diligence practices, ensuring greater transparency in business operations.
Taxonomy and CBAM Adjustments
The EU Taxonomy will also be impacted by the Omnibus Package. Companies falling under the CSRD may voluntarily report on their alignment with the EU Taxonomy standards. However, businesses whose activities account for less than 10% of their total revenue will not need to include these in their reporting.
In terms of the Carbon Border Adjustment Mechanism (CBAM), companies importing fewer than 50 tons of CBAM goods annually will no longer be subject to the mechanism’s obligations, a change that could alleviate burdens for smaller businesses involved in cross-border trade.
Deforestation Regulation: A Missed Opportunity
One notable omission in the Omnibus Package is the Deforestation Regulation, which remains largely unchanged. This regulation is among the most administratively burdensome, requiring due diligence statements for every shipment. The lack of simplification in this area represents a missed opportunity to ease regulatory challenges for businesses involved in the import of products linked to deforestation.
Next Steps: Debate and Negotiation
The proposals presented by the European Commission are now subject to further discussion and negotiation in both the European Parliament and among member states. The Commission has urged lawmakers to prioritize the review of these proposals to facilitate swift implementation. However, due to some controversial aspects, the discussions may take time, and the final text may undergo significant changes before it is enacted.
Conclusion
The Omnibus Package represents a significant step towards reducing the regulatory burden imposed by sustainability laws on businesses within the EU. While the simplifications are a welcome relief for many, the challenge will be ensuring that these changes do not undermine the EU’s ambitious sustainability targets. Legal certainty and effective implementation will be key to ensuring that companies remain engaged and committed to the broader goal of responsible business practices. The coming months will be critical as the proposals move through the legislative process, and the European Commission, Parliament, and member states work together to finalize the changes.