EU: Omnibus Sustainability Directive reforming sustainability reporting and due diligence

Why should I read this?

The ‘sustainability omnibus’ or ‘omnibus sustainability directive is a proposed legislative act amending the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CS3D) and Taxonomy Regulation. The European Commission announced a series of omnibus packages in November in response to the call in the Budapest Declaration to reduce reporting burdens on businesses.

The sustainability omnibus aims to simplify sustainability reporting and due diligence requirements and clarify the application of the existing rules. It does not, however, seek to simplify the legal texts; it builds upon the already published legislative acts, rather than consolidating them.

What happened so far?

The announcement of the sustainability omnibus set off a heated debate, drawing in Member States, the EU Institutions, NGOs, business leaders and key stakeholders across the world:

• 2 January: the German Chancellor writes to the President of the European Commission: 
  The letter pushes for a two year delay for CSRD and substantive changes, saying “In its current form, the benefits of the directive are not aligned with the bureaucratic effort for the companies.”
• 18 January 2025, major businesses publish a letter to the European Commission urging it not to reopen the existing legislation:
  The letter was signed by major businesses with an EU presence, pointing out the risk the omnibus presents and in support of the EU focusing on developing the clear and practical guidance to support businesses implementing the existing framework rather than introducing major amendments.
• 20 January 2025, French Authorities publish a letter calling for in-depth review of the framework: 
  The letter calls for a regulatory pause, an in-depth review of the existing framework and entry into force of CS3D to be delayed.
• 21 January 2025, ECOFIN meeting:
  The Council officially supports the Commission’s  plans to simplify reporting obligations and undertakes cooperate with the Commission on the omnibus.
• 29 January 2025, The EU Competitiveness Compass published: 
  In the Compass, the European Commission announces that the first omnibus will include streamlining and simplification of sustainability reporting, sustainability due diligence and taxonomy, and create a new category of small mid-caps which will be subject to less stringent reporting requirements.  The omnibus will ensure better alignment of the requirements with the needs of investors, proportionate timelines, financial metrics that do not discourage investments in smaller companies in transition, and obligations proportionate to the scale of activities of different companies. It should also address the trickle-down effect to prevent smaller companies further down supply chains from being indirectly subjected to excessive reporting requests.
• 4 February 2025, PRI and EuroSIF and other major actors in asset management industry warn against the omnibus in a public letter: 
  Investors with a combined €6.6 trillion in assets under management urge the European Commission to “preserve the integrity and ambition” of the EU’s sustainable finance framework and warn against wholesale changes that may be introduced through the omnibus.
• 5 and 6 February 2025, closed door consultations: 
  The Commission holds closed door consultations on the omnibus with representatives of large businesses and NGOs. Unconfirmed reports from the meetings mention that the Commission considers introducing far-reaching changes such as removing double materiality assessment from CSRD, aligning scope of CSRD with CS3D, or removing obligations in relation to transition plans.
• 9 February 2025, the US Administration expresses concerns about CS3D:
  The new US Commerce Secretary, Howard Lutnick, has made clear that he will consider using “all available trade tools” to respond to the application of CS3D to US firms and that the Directive is a "serious concern for American industry”.
• 12 February 2025, The Commission Work Programme:
  The Commission formally confirms that the omnibus will amend sustainability reporting, due diligence and taxonomy obligations.
• 18 February 2025, Spain publishes its letter to the European Commission: 
  Spain urges the European Commission not to weaken existing environmental regulations that require companies to report on their ecological impact and adhere to sustainability criteria.
• 22 February, an internal, partial draft of an omnibus legal act is leaked. The document (marked as ‘internal’) includes the following amendments:

CSRD

• CSRD to apply the same scope thresholds as CS3D (ie to apply only to firms with more than 1000 employees and a net turnover exceeding EUR 450 million). All other thresholds are deleted, and there are no groupings.

CS3D

• possibility to disapply duty to terminate business relationships.
• due diligence obligations only in relation to company’s own operations, subsidiaries and direct business partners.
• obligation to conduct assessment of company’s due diligence measures changed from at least every 12 months to at least every 5 years.
• no direct obligation for Member States to ensure civil liability for claims.
• obligation to ‘put into effect’ climate transition plans replaced with obligation to ‘take implementing actions’.

The amendments listed above come from a leaked and incomplete version of the draft which is subject to an internal review at the Commission and should not be treated as final or official material.

Further noteworthy amendments are alluded to in the recitals although corresponding amendments do not appear in the leaked main body text. Examples of such amendments include: deferral of application of CS3D until 26 July 2028 for the first tranche of companies required to apply it; future publication of guidance on scope of CSRD limited assurance standard; removal of references to any forthcoming CSRD reasonable assurance standard; reduced CSRD extra-territorial scope (harmonised with above thresholds); and removal of CSRD sector-specific European Sustainability Reporting Standards (ESRS).

This draft does not explicitly seek to amend the EU Taxonomy (though the CSRD scope directly affects the Taxonomy reporting scope) or the existing ESRS. However, it is expected that those still may be amended by separate acts.

The big day on Wednesday 26 February?

Although reports in early February suggested that the publication of the omnibus is being postponed, the Commission agenda published on 18 February indicates that a discussion of the omnibus is due to take place on 26 February 2025. It is conceivable that the Commission will publish the official draft on that date.

What happens next?

The omnibus is structured as an EU Directive (a primary EU legal act which has to be implemented by Member States).  Once the official draft is published, the omnibus will undergo the ordinary legislative procedure which means it will need to be approved by the European Parliament and the Council. Timing of this process is currently unknown and will largely depend on whether it receives support of Member States. The European Commission has called on the Council and the European Parliament to ‘fast track’ the omnibus once published.

Although some way off, once the omnibus is finalised, Member States that have already transposed CSRD and CS3D will need to amend their implementations. Member States that have not yet implemented these will need to reflect the revised obligations in their eventual implementation. The leaked text indicates Member States will have 12 months to do this once the text becomes effective.

How Eversheds Sutherland can help?

We have extensive experience and expertise in advising clients on ESG matters. Our team has been closely following the development of CSRD, CS3D and Taxonomy Regulation as well as their delegated acts and related guidance. Please speak to your usual Eversheds Sutherland contact if you need help with the interpretation of CSRD, CS3D or the upcoming omnibus and their impact on your business. We can assist you with scoping analysis and identification of rules applicable to your organisation. We continue to monitor developments in this area and more briefings will follow once the omnibus is published.