This week’s EU Omnibus developments

A rundown of who is saying what this week, and what more we know about plans to revise Europe’s sustainability rules

A draft of the omnibus proposal was circulated among different departments of the Commission on Friday, for what’s known as an inter-service consultation.

Leaks of those documents suggest the overhaul of the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CS3D) and the Taxonomy Regulation will be drastic.

It’s important to note that these are not the final versions and, with internal tensions high within the Commission, there is still scope for things to be revised before the official legislative proposal is tabled.

But here are the key changes outlined in the leaks.

CSRD

Both Level One and Level Two of CSRD look set to be re-opened, with a view to retaining the EU’s ‘double materiality’ approach but reducing the directive’s scope to match that of CS3D.

So instead of its current application to companies with more than 250 employees and €40m in turnover, it would only cover those with more than 1,000 employees and €450m in turnover.

Sector-specific standards would be delayed under the proposal.

CS3D

The leaked draft suggests CS3D will be hugely reduced in terms of scope, stakeholder engagement and legal implications.

Specifically, it proposes that companies should limit their risk assessments to direct suppliers, unless there is “plausible information” to suggest risks for indirect suppliers. Direct suppliers with less than 500 employees should only be included in in-depth assessments, not broader risk mapping.

Companies would also need to monitor those suppliers less frequently – possibly every five years as opposed to annually – and would not be required to terminate contracts for those who fail to meet expectations over time.

The civil liability provisions would be axed, and transition plans wouldn’t have to be implemented if the draft version was passed.

Taxonomy

Real Economy Progress has not seen the draft proposals for the Taxonomy Regulation, which is expected to be re-opened at Level One and Two.

However, sources say the Commission is recommending the framework is made voluntary – something German business associations, among others, have been lobbying for.

It is unclear why, if this is the case, the Level Two texts would be revised to streamline DNSH rules, but some sources say that’s also part of the Commission’s current proposal.

Timing

The Commission’s cabinet will meet on Monday to discuss the draft and, despite widespread rumours that the final version will be delayed until March, it is still scheduled for discussion on Wednesday – although a Commission spokesperson told REP this was “indicative and subject to change based on our internal processes”.

More requests from Member States

Member States have continued to make their positions public on the omnibus this week.

Spanish ministers wrote to the Commission on Monday, saying they “highly value the contribution of CSRD, complemented by the introduction of the European Sustainability Reporting Standards, together with the Taxonomy Regulation, in advancing the objectives of the European Green Deal and the Clean Industrial Deal”.

Carlos Cuerpo Caballero, Spain’s minister for economy, trade and business, and Sara Aagesen Muñoz, the country’s ecological minister, urged the Commission to preserve CSRD’s double-materiality component.

Smaller companies, the pair said, should have less ambitious reporting requirements and more time to prepare for them.

“We believe that all companies, including those in this category, should be subject to mandatory, albeit proportionate, climate reporting,” they added.

The Taxonomy is a “cornerstone” of the EU’s sustainable finance package and should therefore only be altered at Level Two, the letter argued, closely mirroring recommendations from the Commission’s own advisory body, which is chaired by Helena Vines Fiestas, a commissioner at Spain’s financial markets authority.

The ministers claim that CS3D creates a level-playing field for companies across the EU and “its revision should be avoided” in favour of high-quality guidance at Level Two.

Denmark, on the other hand, seems to be calling for sweeping reforms.

In a leaked position paper, the government asks for reductions to CSRD, some of which match the Commission’s current draft.

Its scope should be aligned with CS3D, according to the unofficial document, and the requirements themselves reduced “by 50-70%” via a delegated act.

It also wants delays to the first wave of CSRD disclosures (by two years) and auditing requirements (by a year). Sector-specific guidelines should be ditched altogether.

The paper questions the need for mandatory taxonomy reporting, and calls for the permanent removal of the finance sector from CS3D.

Germany’s sustainable finance advisory body issued its position on the omnibus on Monday, too, insisting that double materiality was a core principal of the EU’s disclosure rules and one that it should try to export internationally.

The committee, which is meant to steer the German Government’s thinking on these issues, urged policymakers not to disadvantage companies leading compliance efforts by delaying the rules for other firms. It said the Commission should instead “postpone present enforcement and sanctioning measures (not the reporting requirements themselves) until legal certainties are resolved”.

Note: The section on CS3D was updated after publication, to clarify what the leaked proposal says about assessing direct and indirect suppliers.