Omnibus proposals point towards watered down CSRD and CSDDD

The European Commission has revealed the details of its Omnibus Specification package with the release of Omnibus I and II on February 26th[i]. The proposals will impact key sustainability due diligence and reporting requirements, as the bloc seeks to reduce the burden on businesses, enhance productivity & competitiveness, and improve consistency with other pieces of legislation.

Unveiled last week, the package covers the following directives:

·         Corporate Sustainability Due Diligence Directive (CSDDD)

·         Corporate Sustainability Reporting Directive (CSRD)

·         Carbon Border Adjustment Mechanism (CBAM)

·         The EU green taxonomy - a cornerstone of the EU’s sustainable finance framework which defines criteria for economic activities that are aligned with a net zero trajectory by 2050, as well as broader environmental goals[ii].

Potential impacts & next steps

The Commission proposals would have the following impacts if enacted:

The CSDDD - which came into force last summer, is regulation which will impose sustainability and human rights due diligence standards on firms operating within the EU. Changes within the Omnibus include:

·         Limiting the scope of the directive from the entire value chain to just “direct business partners”.

·         Reduce the frequency of assessments from annual to every five years (ad-hoc assessments conducted as necessary).

·         Limits to the amount of information large companies can request from smaller companies during value chain mapping.

·         Delay the application of sustainability due diligence requirements for the largest companies by one year, moving the deadline back to July 2028.

·         Companies will continue to be required to compensate victims for harm caused by non-compliance, however civil liability conditions will be removed to protect businesses from over-compensation under the civil liability regimes of Member States.

·         Rather than the current requirement to sever a contract with a supplier in breach of obligations, companies will now only need to suspend contracts.

·         EU Civil Liability Removed: 5% minimum fine requirement is removed, and EU-wide liability is replaced by national enforcement under domestic legal frameworks.

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The CSRD – which requires EU businesses to disclose their environmental and social impacts, will see the following alterations if the Omnibus is approved:

·         Delay reporting requirements for companies that were set to comply in 2026 or 2027, with the deadline pushed back to 2028.

·         Application of the directive to firms with more than 1,000 employees meaning that an estimated 80% of the companies initially covered by the rules will now be excluded. The CSRD is currently designed to cover around 50,000 companies with more than 250 employees.

·         The same exemption will be applied to the EU's Green Taxonomy, which defines what can be considered climate-friendly investments. Therefore, only companies with more than 1,000 employees will be required to report on their business's alignment with taxonomy criteria.

·         Substantial reduction of the number of European Sustainability Reporting Standards (ESRS) data points, focusing on quantitative over qualitative disclosures.

·         Sector-specific ESRS requirements have been removed.

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Carbon Border Adjustment Mechanism (CBAM) - Essentially, the CBAM will ensure that foreign producers pay the same carbon price as EU manufacturers. Companies importing certain polluting products will be required to buy certificates to cover their embedded CO2 emissions. Currently, from 2026, firms importing steel, cement and other goods into the EU will be expected to meet CBAM obligations. Changes laid out in the Omnibus mean that:

·         Around 182,000 the 200,000 importers currently covered would now be excluded, on the grounds that they produce only 1% of emissions in the scheme.

·         CBAM will only be applied to companies importing goods weighing more than 50 metric tons per year. The existing rules cover all imports of CBAM-covered goods with a value above 150 euros.

·         Cut red tape around claiming a reduction in CBAM costs for goods imported from a country where manufacturers already pay a CO2 price. The Commission will from 2027 publish a calculation of annual average carbon prices in other countries, so companies don't have to make the calculation themselves.

·         Existing CBAM rules will be streamlined, making compliance easier, while targeted rules will be introduced to prevent circumvention and ensure fair application.

The legislative proposals will now have to go to the European Parliament for consideration and will require a vote before they can be enshrined in law. The Commission has however urged fast-tracking of the package, particularly with regards to the proposals to delay disclosure requirements under the CSRD, as well as postponement of the CSDDD. A final decision however is still likely months away.

References

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[i] Omnibus I - European Commission

[ii] EU taxonomy for sustainable activities - European Commission

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