EU Omnibus: A Potential Reshaping of Sustainability Reporting

The European Union is considering significant changes to its sustainability reporting framework through its first "Omnibus" package. This move has sparked considerable debate among stakeholders, raising questions about the future of corporate sustainability disclosures.

What is the EU Omnibus on Sustainability Reporting?

The European Commission is reportedly looking to revise both the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD) as part of its broader effort to streamline regulations and boost the competitiveness of European businesses. The primary aim of the Omnibus package, in this context, is to improve the overall framework for sustainability reporting and align the scope of various reporting standards.

Potential Changes on the Horizon:

Several potential changes are being considered, including:

• New Mid-Cap Category: Introducing a new category for mid-sized companies (250-1500 employees) that could offer regulatory relief.
• Delaying SME Reporting: Potentially delaying reporting requirements for small and medium-sized enterprises (SMEs) by one to two years.
• Aligning CSRD and CSDDD Scope: Adjustments to the scope of both directives, potentially excluding companies with under 1,000 employees from CSRD reporting.
• Adjusting Assurance Requirements: Exploring the removal, phasing-in, or reduction of assurance requirements related to sustainability disclosures.
• Re-introducing Mandatory and Voluntary Topics: Revisiting the classification of mandatory and voluntary reporting topics, with the double materiality principle applying to mandatory ones.
• Pausing Sector-Specific Standards: Potentially putting the development of sector-specific sustainability standards on hold.
• Shifting to Single Materiality: Exploring a transition from the double materiality principle (considering both financial and impact materiality) to a single (financial) materiality approach, aligning with the International Sustainability Standards Board (ISSB) standards.

Market Reactions and Concerns

The potential changes have elicited diverse reactions from market participants:

• Calls for Core Principles to Remain: Many stakeholders, including large institutional investors, corporate coalitions, and NGOs, are advocating for the retention of core principles such as double materiality.
• Concerns about Reporting Burden: A growing consensus suggests that the overall reporting burden should be lightened, recognizing that not all of the 1,200 data points under the European Sustainability Reporting Standards (ESRS) are equally valuable to end-users.
• Criticism of Consultation Process: Concerns have been raised about the way consultations regarding the proposed changes have been conducted. Key stakeholders, such as the European Financial Reporting Advisory Group (EFRAG), which drafted the ESRS, and the Platform on Sustainable Finance, were reportedly excluded from consultations.

Timeline and Uncertainty:

While the European Commissions tentative agenda suggests a proposal for the first Omnibus package being tabled for February 26th, rumors of a potential postponement to March have emerged. The exact details and ultimate impact of the Omnibus package remain uncertain, leaving businesses and stakeholders awaiting further clarity.

Looking Ahead:

The EU Omnibus package represents a potentially significant turning point for sustainability reporting in Europe. The decisions made in the coming weeks and months will likely shape the future of corporate transparency and accountability for years to come. As the details unfold, businesses should closely monitor developments and engage in the ongoing debate to ensure their voices are heard. The balance between reducing reporting burdens and maintaining robust sustainability disclosures will be a critical element to watch as the Omnibus package progresses.

Disclaimer: This article is based on currently available information and should not be considered definitive legal or business advice.

Sources and related content

Key EU Documents & Official Announcements:

• European Commission Website on Sustainable Finance: This is the central hub for information on the EU's sustainable finance initiatives, including the CSRD and CSDDD. Keep an eye on this page for official announcements and updates related to the Omnibus package. (Link: https://finance.ec.europa.eu/sustainable-finance)
• Corporate Sustainability Reporting Directive (CSRD): Link to the official text of the CSRD. (Link: EU Corporate Sustainability Directive)
• Corporate Sustainability Due Diligence Directive (CSDDD): Link to the official text of the CSDDD. (Link: Corporate Sustainability Due Diligence Directive)
• European Financial Reporting Advisory Group (EFRAG): EFRAG is responsible for developing the European Sustainability Reporting Standards (ESRS). Their website is a valuable resource for understanding the technical aspects of the reporting requirements. (Link: https://www.efrag.org/)

News Articles and Analysis:

• Financial Times: Search the FT website for articles on the EU Omnibus package and sustainability reporting. They often provide insightful analysis on regulatory developments. (Link: https://www.ft.com/)
• Reuters: Similarly, Reuters is a good source for news and updates on EU policy and regulation. (Link: https://www.reuters.com/)
• Bloomberg: Bloomberg covers business and financial news, including regulatory changes that impact companies. (Link: https://www.bloomberg.com/)
• Accountancy Europe: This organization provides updates and analysis on accounting and reporting issues, including sustainability reporting. (Link: https://www.accountancyeurope.eu/)