The Omnibus package and its impact on EU’s ESG regulation

Yesterday, the European Commission revealed the proposal for the Omnibus Simplification Package (the “Omnibus”), which we have also commented in in our previous update. An omnibus regulation entails a series of legislation which is passed at the same time to accomplish the same goal. The Omnibus addresses three core sustainability regulation from the EU: (i) the Corporate Sustainability Reporting Directive (“CSRD”), (ii) the Corporate Sustainability Due Diligence Directive (“CSDDD”) and (iii) EU’s green taxonomy classification system (the “Taxonomy Regulation”). The aim is to reduce the reporting burden and to limit the trickle down obligations on smaller companies.

Some of the main takeaways from the Omnibus proposal are:

CSRD and the Taxonomy Regulation

• Adjusting the scope of CSRD by taking out of scope large undertakings with up to 1000 employees and listed SMEs. Hence, the reporting requirements will only apply to large undertakings with more than 1000 employees on average, aligning CSRD with CSDDD. The adjustment is expected to remove around 80% of companies under the current scope of CSRD.
• In addition, and for reasons of consistency, in Article 40a of the Accounting Directive, the net turnover threshold for an undertaking not established in the EU to be subject to the reporting requirements at the group level would be raised from EUR 150 million generated in the Union to EUR 450 million. Furthermore, the threshold for the EU branch under article 40a is raised from EUR 40 million to EUR 50 million and the threshold for the EU subsidiary is limited to large undertakings as defined in the Accounting Directive (the key thresholds of the CSDDD are 1000 employees and EUR 450 million turnover).
• For undertakings not subject to mandatory sustainability reporting requirements, it is proposed a “proportionate standard for voluntary use” which would be based on the Voluntary Sustainability Reporting Standard for non-listed SMEs (the “VSME” standard), developed by the European Financial Reporting Advisory Group (“EFRAG”) (more on VSME in our previous update from January). According to the Omnibus, the European Commission intends to adopt this voluntary standard as a delegated act.
• The value-chain cap will be extended and strengthened. It will apply directly to the reporting company instead of being only a limit on what the European Sustainability Reporting Standards (“ESRS”) can specify. The Omnibus states that it will protect all undertakings with up to 1000 employees rather than just SMEs as is currently the case. The limit will instead be defined by the abovementioned voluntary standard based on the VSME standard. This updated approach is expected to substantially reduce the trickle-down effect.
• No sector-specific reporting standards.
• The Omnibus introduces an “opt-in” regime where large undertakings with more than 1000 employees on average and a net turnover not exceeding EUR 450 million which claim that their activities are aligned or partially aligned with the Taxonomy Regulation shall disclose their turnover and CapEx KPIs and may choose to disclose their OpEx KPI. This “opt-in” approach will eliminate entirely the cost of compliance with the Taxonomy Regulation reporting rules for such large undertakings which do not claim that their activities are associated with economic activities that qualify as environmentally sustainable under the Taxonomy Regulation.
• The European Commission intends to adopt without delay a delegated act to revise the first set of ESRS.
• The reporting requirements for companies currently within scope of CSRD is proposed postponed by two years. The argument in the Omnibus is that the European Commission wants to give the companies time to take into consideration the ongoing initiatives from the EU Commission to provide for legal clarity, and to avoid that the companies currently required to report for financial years beginning on or after 1 January 2025 and on or after 1 January 2026 incur unnecessary and avoidable costs.
• Possibility of moving from a requirement for limited assurance to a requirement for reasonable assurance is proposed removed with the purpose of providing clarity that there will be no future increase in costs of assurance for undertakings in scope.
• By removing the distinction between listed and non-listed undertakings, the Omnibus is intended to be consistent with the goal of the Capital Markets Union to make EU regulated markets more attractive as a source of financing. According to the Omnibus, to be in scope of the sustainability reporting requirements undertakings must have more than 1000 employees. Since the 1000 employee threshold is one of the main criteria used to define which undertakings are subject to the CSDDD, the Omnibus promotes closer alignment between the CSRD and CSDDD. Undertakings subject to both the CSRD and the CSDDD are not required by the CSDDD to report any information additional to what they are required to report under the CSRD. The proposed modifications will not take out of the CSRD scope any undertakings that are subject to the CSDDD, meaning that this consistency between the two pieces of legislation is maintained.
• As for the Taxonomy Regulation in general, the Omnibus is accompanied by a draft Taxonomy Delegated Act for public consultation. The EU Commission has also published possible amendments to the Taxonomy Disclosures Delegated Act and the Taxonomy Climate and Environmental Delegated Acts which, among others, simplify the reporting templates which should lead to a reduction of data points by almost 70%, introduce a materiality threshold to make disclosure of alignment for companies with less 10% eligible activities not mandatory, introduce the option of reporting partial disclosure to foster transition finance, simplify and make more useful the Green Asset Ratio (GAR) used by banks, reduce the scope for mandatory reporting on operational expenditure and simplify certain ‘Do no significant harm’ (DNSH) criteria.

CSDDD

• According to the current rules, Member States should transpose the CSDDD by 26 July 2026. Entry into application is envisaged in three phases:

1. 1. From July 2027: the largest EU companies, i.e. those that have more than 5000 employees and report a net annual (worldwide) turnover of more than 1.5 billion euro, as well as to non-EU companies that generate more than EUR 1.5 billion net turnover in the EU.
   2. From July 2028: EU companies with more than 3000 employees and more than EUR 900 million net turnover, as well as non-EU companies generating such net turnover in the EU.
   3. From July 2029: all other companies falling under the general scope would have to start applying the national rules transposing CSDDD.

• The Omnibus will postpone the first phase (mentioned above) of the entry into application of the CSDDD by one year. Further, the Omnibus would postpone the transposition deadline for the Member States by one year to account for possible delays in their ongoing CSDDD transposition efforts due to possible amendments to CSDDD by the parallel simplification proposal (the Omnibus).
• The definition of ‘stakeholders’ is updated: the company’s employees, the employees of its subsidiaries and of its business partners, and their trade unions and workers’ representatives, and individuals or communities whose rights or interests are or could be directly affected by the products, services and operations of the company, its subsidiaries and its business partners and the legitimate representatives of those individuals or communities.
• The article 29 on civil liability is amended. According to the Omnibus, while removing the uniform rules on civil liability reduces harmonisation, it ensures respect for existing, national liability regimes in line with the subsidiarity principle and ensures greater legal certainty on liability risks under a new type of risk-based corporate obligations.

The Omnibus consists of two packages and a number of documents. The main ones from the first package can be accessed here (as regards the dates from which member states are to apply certain corporate sustainability reporting and due diligence requirements) and here (as regards certain corporate sustainability reporting and due diligence requirements). From the second package, the proposal regarding increasing the efficiency of the EU guarantee under Regulation (EU) 2021/523 and simplifying reporting requirements can be accessed here. The second package has not been described in this Pulse update; however, it is a result of the European Commission has proposed a series of amendments to simplify and optimise the use of several investment programs including InvestEU, EFSI, and legacy financial instruments. Finally the Taxonomy Delegated Acts, accompanying the Omnibus, can be accessed here.

Next step: The Omnibus will be submitted to the European Parliament and the European Council for their consideration and adoption. The changes on the CSRD, CSDDD etc. will enter into force once the co-legislators have reached an agreement on the proposals and after publication in the EU Official Journal. The draft delegated act amending the current delegated acts under 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 European Council.

Tags:  CSDDDCSRDDisclosure RequirementsSustainability