Paragraph 1: The European Union (EU) is currently undergoing a period of significant introspection regarding its ambitious climate change regulations, collectively known as the European Green Deal. Driven by concerns about the regulatory burden on businesses, the EU is preparing an “Omnibus Simplification Package” aimed at streamlining reporting requirements related to sustainability. This package will focus on three key pieces of legislation: the EU Taxonomy for Sustainable Activities, the Corporate Sustainability Reporting Directive (CSRD), and the Corporate Sustainability Due Diligence Directive (CSDDD or CS3D). These regulations, implemented between 2020 and 2024, were designed to propel the EU towards its net-zero emissions target by 2050, in line with the Paris Agreement. However, the complexity and perceived onerousness of these regulations have prompted calls for reform, leading to the current initiative. The proposed simplification package, expected to be unveiled in February, carries significant implications for the global landscape of sustainability reporting.
Paragraph 2: The EU Taxonomy, established in 2020, provides a classification system to define environmentally sustainable economic activities. This framework helps businesses and investors identify investments that align with the EU’s environmental objectives. The CSRD, adopted in 2023, mandates businesses to report on their environmental, social, and governance (ESG) performance, including greenhouse gas emissions. Reporting requirements under the CSRD are phased, beginning with large companies in 2025, followed by SMEs and non-EU companies in subsequent years. The CS3D, enacted in 2024 after considerable debate and amendments, extends reporting requirements and introduces legal liability for companies related to their supply chains. This directive aims to ensure that companies not only address their own sustainability impacts but also those of their suppliers, encompassing both environmental and human rights considerations.
Paragraph 3: The impetus for the Omnibus Simplification Package stemmed from an informal Council meeting in November 2024, where European Commission President Ursula von der Leyen announced the intention to streamline sustainability regulations. This announcement sparked intense speculation and lobbying from both business groups and climate activists. While various predictions and expert opinions circulate, the precise content of the proposed package remains uncertain. Multiple draft proposals have been circulated internally, suggesting an ongoing struggle to find a balance between reducing the regulatory burden and maintaining the integrity of the EU’s climate goals.
Paragraph 4: The lack of consensus surrounding the Omnibus Simplification Package is evident in the discussions at the January 2025 Economic and Financial Affairs Council (ECOFIN) meeting. The broad and open-ended questions posed to member states regarding simplification efforts highlight the absence of a clear direction. While ECOFIN publicly expressed support for reducing reporting requirements to boost EU competitiveness, concrete proposals remained elusive. A leaked draft of the European Commission’s Competitive Compass for the EU provided some insight, suggesting a focus on aligning data requirements with investor needs, proportionate timelines, and addressing the “trickle-down” effect of reporting requirements on smaller companies in supply chains.
Paragraph 5: Predicting the specific content of the Omnibus Simplification Package is challenging, but based on available information, potential changes can be anticipated. For the CSRD, delays in reporting requirements for SMEs and non-EU companies are likely, along with potential increases in reporting thresholds to reduce the number of affected businesses. The package might also address contentious areas such as sector-specific standards and Scope 3 emissions reporting (emissions from a company’s value chain). For the CS3D, a likely outcome is a delay in implementation, potentially by two years. Given the significant business concerns around the legal liabilities introduced by the CS3D, the ability for individuals to file lawsuits against companies may be curtailed or eliminated. Amendments to protect SMEs from excessive data requests by larger companies under the CS3D are also anticipated.
Paragraph 6: The final draft of the Omnibus Simplification Package and its subsequent impact on the CSRD and CS3D remain uncertain. The proposal’s release in February will initiate a new phase of public debate and scrutiny. The implications of any changes extend beyond the EU’s borders. The EU’s leadership in sustainability reporting has influenced global standards. A perceived weakening of the EU’s commitment could embolden resistance to similar initiatives in other jurisdictions, particularly in the United States, where political opposition to climate reporting and ESG regulations exists. The Omnibus Simplification Package, therefore, has the potential to reshape the international landscape of corporate sustainability and climate action.
