EU ‘omnibus’ could safeguard sustainability laws during negotiations, says lawyer

Widely-misunderstood proposal to revise CS3D, Taxonomy and CSRD continues through EU process

The European Commission’s plan to create an ‘omnibus legislation’ could help to safeguard its sustainability rules rather than opening the door to their abolition, says a Frankfurt-based lawyer.

Heike Schmitz, a partner and ESG specialist at law firm Herbert Smith Freehills told Real Economy Progress there was potential for the omnibus to limit the extent to which EU Parliament and Council could interfere with the Corporate Sustainability Due Diligence Directive (CS3D), Corporate Sustainability Reporting Directive (CSRD) and Taxonomy Regulation.

“There is a very common misunderstanding about what an omnibus does,” she explained, adding that the approach was “about political bargaining”.

Earlier this month, Commission president Ursula von der Leyen said an “omnibus” would be created to streamline three of the EU’s flagship corporate sustainability laws.

At the time, there were reports (including in Real Economy Progress) that this would mean bringing them under one law, to increase their alignment and allow the rules to be renegotiated together.

In reality, it would actually involve the creation of a single legislation mandating changes to all three.

CS3D, CSRD and the Taxonomy Regulation are all expected to be reopened as part of that process, which Schmitz said “may be dangerous” given the current appetite from some parts of Council and Parliament to drastically reduce Europe’s sustainability ambitions.

“But it should be reopened in a very safeguarded way by doing it like this,” she continued, because compromises must be made in the context of all three laws, not individual files.

The Commission is expected to collect the views of Council and Parliament and compile a package of amendments that could take the form of an official omnibus legislation, or just a simplification package comprising multiple pieces of legislation.

A legislative proposal is due to be tabled in the first quarter of 2025, alongside the new Commission’s broader work programme.

Insiders say it is likely to include plans to further delay the rules – either in part or as a whole – and reduce their scope by increasing the size thresholds for eligible companies.

It’s possible the requirements may be more fundamentally revised to remove provisions that firms claim are unworkable.

There are reports that, if it comes as a legislative package, it may also include proposals to amend Level 2, meaning the European Sustainability Reporting Standards that companies must use as the basis for their disclosures could be pared back.

Industry lobbying will almost certainly ramp up over the next few weeks to push for stronger dilution.

In principle, bundling the amendments into a single negotiation process makes it harder for any side to be too aggressive in their positioning on a particular law, and gives the Commission more bargaining chips to encourage compromise.

“Council and Parliament will of course try to put in as much as possible of what they want, but in the end they would have to accept the negotiated package or stick with the current legislation,” said Schmitz.

“It’s probably the only thing you can do in the current situation, if you want to bring changes through when there is so much difference of opinion. The alternative would be to simply open every single piece of regulation separately.”