Omnibus: What you ACTULLY need to know

First things first, what is Omnibus?  Omnibus is a legislative proposal by the EU Commission that was aimed at simplifying and streamlining current sustainability reporting regulations within the European Union. It was meant to address the concerns of various stakeholders citing complexity and administrative burdens in complying with the sustainability laws.

Why?

The proposal made by the Omnibus is pegged on the current unstable geopolitical context. The two reasons cited are Russia’s war aggression against Ukraine that has resulted in high energy prices for EU companies and Trade tensions and different shifts of the corporate sustainability reporting and due diligence by major jurisdiction (read the US) reducing EU companies’ competitiveness.   

What has been proposed: Amendment to the CSRD including the EU Taxonomy and CSDDD. Below is an overview of the Amendments proposed to the three regulations.

CSRD

1. Timing

• Postpone by 2 years (until 2028) the reporting obligation of companies due to report in 2026 and 2027.
• No changes have been made to companies currently reporting and non-EU companies due to report in 2029.

2. Scope

• The scope of companies significantly reduced the scope of companies required to report on CSRD by 80 % by limiting it to:
• EU companies that have more than 1000 employees have a net turnover of £50 M.
• Non-EU Parent Companies if they generate a consolidated basis of £ 450 M and have a large EU subsidiary or EU branch that generates £ 50 M
• Voluntary reporting for companies with 1000 employees based on the VSME standards.

3. Data Points

• Reduce the number of mandatory ESRS data points.
• Clarify unclear standards and improve consistency with other EU legislation.
• Remove sector-specific reporting standards.
• In-scope companies to be barred from requiring companies in their value chain with fewer than 1000 employees to provide information for CSRD reporting.

4. Assurance

• Eliminate targets for reasonable assurance and clarify standards for Limited Assurance

EU TAXONOMY

1. Scope

• Mandatory EU Taxonomy reporting for only companies claiming that their economic activities qualify as environmentally sustainable..
• Voluntary Reporting for large companies with less than 1000 employees and a net turnover not exceeding £450 M for EU Taxonomy.
• Companies that have made progress towards sustainability targets, but only meet certain EU Taxonomy requirements, would be permitted to voluntarily report on their partial Taxonomy-alignment.

2. Data Points

• Reduction of the mandatory data points of EU Taxonomy Reporting by nearly 70%.

CSDDD

1. Time

• Delay in CSDDD compliance by one year to July 26, 2028, as the commission would be mandated to adopt due diligence by July 2026 allowing companies 2 years to implement guidelines.

2. Data Points

• Restriction of National standards of EU States being more stringent than those imposed by the CSDDD.
• Limitation of the due diligence on business partners on only direct business partners and only top indirect business partners only when there is plausible reason that there are or may be adverse impacts.
• Limiting the amount of information that may be requested from SMEs and small mid-caps to reduce the burden and trickle-down effect.

3. Termination

• Remove the duty to terminate business relationships when there is no reasonable expectation that the prevention action plan will succeed in ending or minimizing adverse impacts.

4. Monitoring

• Monitoring obligation of the effectiveness of measures every five years instead of every year except when the measures are no longer effective

5. Stakeholders

• Stakeholders are limited to affected individuals and communities whose rights and interests are directly affected.
• The stakeholders would no longer expressly include consumers, groups, entities, national human rights and environmental institutions, and civil society organizations whose purposes include the protection of the environment.
• Engagement with stakeholders in the due diligence process would no longer be required for the suspension of a business relationship or for the development of indicators to monitor the effectiveness of company measures.

6. Transition Plan:

• Remove the obligation to adopt and put into effect a transition plan but instead to adopt a transition plan and implement actions to meet the EU GHG emission goals.

7. Liability

• Removal of the obligation of mandatory maximum penalty of not less than 5% of net worldwide turnover of member states national laws adopted under CSDDD. Instead, it requires an effective, proportionate, and dissuasive penalty considering factors like the gravity of the infringement and the severity of resulting impacts.
• When a company enters into a prevention action plan with a business partner, the mere fact of continuing to engage with the partner would not trigger the company’s liability, so long as there is a “reasonable expectation” that the plan will not succeed.
• Removal of mandatory obligation to provide for civil suits under national law for company liability to third parties for failure to implement due diligence requirements. If a state allows liability, it should allow for full compensation.
• Alleged injured parties are no longer allowed to be represented by labor unions and NGOs to bring actions to enforce their rights.

8. Financial Institutions

• Remove the obligation of the Commission to prepare a report on tailoring due diligence to regulated financial undertakings with respect to their financial services and investment activities.

But, it is not all bad news! The Double materiality standard under the CSRD is still maintained! More information about this can be found here.

What is Next

It is important to underscore that this is just a `Proposal`. It will go through a tripartite negotiation among the Commission, EU Parliament, and EU Council. It is expected that some of the amendments may be weakened, strengthened, or modified. Several proposals are already facing backlash and opposition from the public sector, civil society, the private sector, investors, and even within some quarters of the Commission and the Parliament due to their controversial nature.

How long the negotiations are going to take place is hard to predict, however, it is a lengthy process, and given the nature of the EU  legislative process, it is highly likely that this might not be resolved by 2026. There is also the possibility that the Proposal may be rendered moot with time if the unstable geopolitical nature that the Omnibus is riding on changes.

This is a critical moment for EU businesses. They must balance understanding all the changes, dealing with the uncertainties caused, and establishing how this affects their compliance obligations and sustainability goals and commitments.

It is advisable for EU businesses to continue with preparations for the systems needed for sustainability reporting while closely monitoring the changes in policy. The worst that can happen is that they will find themselves over prepared. The flip side would be that 5% of their worldwide turnover might be at risk.