The Omnibus Legislation on Sustainability Reporting

As part of the new strategy set by the European Commission (EC) to put an end to the over-regulation in certain industries within the internal market, Ursula von der Leyen, President of the EC, has expressed the EC’s will to compile and simplify the Corporate Sustainability Due Diligence Directive (CS3D), the Corporate Sustainability Reporting Directive (CSRD) and the EU Taxonomy Regulation.

The announcement of this consolidated legal text, commonly known as ‘omnibus’ legislation, has raised some questions regarding the consequences that this initiative will bear on the existing framework. We are here to answer some of these questions and provide you with regular updates on the issue.

Is this good or bad news?

Even though Ursula von der Leyen has stressed that the content will remain unchanged, an omnibus inevitably requires some amendments to consolidate the existing regulations in the same legal text. Some stakeholders regard this event as the opportunity to ‘water down’ the reporting requirements. It is not a secret that the addresses of these regulations find them, not only excessively complex from a formal perspective, but also too demanding.

While it is true that these requirements are, to this date, somewhat unclear and overlapping, they have proven effective across all industries. It is early to rely on comprehensive studies that showcase this progress, but, as practitioners, we can confirm that they are achievable and, most importantly, successful. Early research shows that sustainability reporting, while costly, actually enhances the firm’s reputation, grants them access to more capital and new markets, and provides them with a competitive advantage over other non-compliant firms. The long-term benefits seem to outweigh the negative implications of adhering to the requirements.

We must not forget the objective pursued by these regulations, which is to introduce sustainability considerations within the internal policies and supply chains of all companies and to establish once and for all what the word ‘sustainability’ actually means. Admittedly, these requirements could use some touch-ups to ease the way toward compliance. For example, the data points collected have proven repetitive or impractical in certain cases. For more information of the shortcomings of the sustainability reporting framework, check this article.

As von der Leyen consistently reiterates, the goal would be to reduce the bureaucratic burden rather than the content of the disclosures. If these statements held true, we would have nothing to fear and the omnibus would most likely have a positive outcome.

What to expect?

Having clarified our stance on this discussion, the question remains: how likely is it that the requirements change?

Despite all promises made by Ursula von der Leyen to keep the requirements as they are, it is not fully within her control. The EC can have the initiative to consolidate the CS3D, CSRD and EU Taxonomy Regulation under the same instrument, but it will be up for theParliament and the Council to approve the proposed legal text… or not. It is then when the EC may be required to implement some changes to the provisions.

A recent example is the EU Deforestation Regulation (EUDR), which despite the EC’s intention to start enforcing from December 2024, was delayed one more year due precisely to the pressure exerted by large market participants in the affected industries. It is estimated that this delay will lead to the loss of 2.300 square km of forest.

Similar pressures are expected if an omnibus for sustainable reporting was sent to vote. The Draghi Report repeatedly refers to sustainability reporting as an administrative burden. Although, as explained above, there is some truth to it, that premise will serve certain lobbies to advocate for the removal of these obligations altogether. In light of this possibility, green activists take the opposite stance, rejecting the omnibus on its entirety and requesting the EC to address these shortcomings through clear guidelines, rather than through new legislation.

The EC’s Omnibus Proposal will be released on 26 February 2025. Stay tuned for an analysis and critical commentary of its content.

In the meantime…

Let us guide you through meaningful discussions and provide expert advice on how to align your investing strategies with sustainability reporting requirements, aiming not only for compliance but also for success in the evolving sustainability landscape.

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