EU warned (again) to tread with caution around Omnibus simplification

EU regulators have been warned by investors, the European Central Bank and legal scholars to tread with caution as it embarks on the revision of its flagship sustainability reporting regulations.

Now that the European Parliament and Council have stopped the clock on the implementation of the Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD), the work has started to negotiate and adopt a simplification of these two laws. The European Commission has said it aims to reduce the reporting burden by 25 to 35% for EU companies – but even those in favour of the Omnibus simplification are worried about how it plans to achieve that.

ECB on ‘the right balance’

In an opinion published last week, the European Central Bank (ECB) said it supports the Commissions’ efforts to simplify regulation and ensure EU firms remain competitive, but that “it is important to strike the right balance to ensure that the benefits of sustainability reporting for the European economy and for the financial system are retained while ensuring that the framework is proportionate”. 

In particular the ECB believes that “harmonised, standardised and reliable sustainability information” is crucial for the financial sector in facilitating the allocation of capital to clean technologies, renewable energy and energy-efficient infrastructures – supporting both the Competitiveness Compass and the Clean Industrial Deal.

“The sustainability reporting framework, in particular the reporting standards on climate change, offers valuable metrics to inform investments in low-carbon industries, renewable energy projects, transition finance and other clean and green initiatives, thereby supporting both competitiveness and the achievement of the Union’s climate targets. Harmonised reporting, rather than fragmented individual data collection, and interoperability with international standards, serve to avoid unnecessary compliance costs for both reporting companies and users of the data,” the ECB added.

EFAMA recommendations

Meanwhile, the European Fund and Asset Management Association (EFAMA) has urged European lawmakers to “better heed the concerns of European investors” in the ongoing revisions to the CSDDD and CSRD.

In its recommendations for the Omnibus package, the investment association says the directive should reduce European Sustainability Reporting Standards data points by around 80%, focusing primarily on quantitative information rather than “narrative disclosures” – the organisation itself has developed a reduced list of data points.

Tanguy van de Werve, EFAMA Director General, commented: “The adoption of a holistic ESG data strategy in the context of the ESRS revision must place meaningful sustainability-related data for investors at its core, ensuring that the disclosed information is relevant and actionable. Simplifying disclosure obligations for reporting companies is equally essential to enhance comparability and reduce administrative burdens. By focusing on these priorities, we can establish a more efficient and effective sustainability reporting framework that serves the interests of all stakeholders and addresses competitiveness across the value chain.”

EFAMA also insisted on the need for the Omnibus to provide legal  clarity over the exclusion of the obligation for asset managers to report on clients’ Assets under Management (AuM) in the CSRD.

Legal scholars: Omnibus could create litigation risk

Finally, a group of 31 leading legal scholars, including Oxford professor Thom Wetzer, have written a letter to the European Commission arguing that revising CSDDD – particularly the obligation for companies to develop and "put into effect" a climate transition plan will “call into question the nature of the legal obligation facing companies, prompting concerned parties to litigate”. 

“This, alongside the constantly shifting goal posts of EU climate policy, will make it harder for businesses to commit to a sustainability strategy for the long term,” Wetzer added in a Linkedin post announcing the letter. 

Their comments echo other critics who previously warned that the Omnibus package is likely to make CSDDD ‘toothless’ by limiting due diligence to Tier 1 suppliers, reducing the amount of information required, and removing companies’ legal liability for environmental and human rights violations within their supply chains.

"Stripping due diligence beyond direct suppliers, scrapping stakeholder engagement, and eliminating civil liability give corporations a free pass to operate without consequences," said Nele Meyer, Director of the European Coalition for Corporate Justice, in February.