Unpacking the EU’s Omnibus proposal - Agendi

Environmental, social, and governance (ESG) reporting, like the EU sustainability regulations, was introduced to mitigate long-term risks and enhance market stability. However, recent regulatory shifts in the EU suggest a move towards easing these measures, raising concerns among investors. The logic behind ESG disclosures is clear: transparency on sustainability, in particular risks, enables capital markets to allocate resources more efficiently and with confidence that material topics are considered. The European Commission’s proposed ‘Omnibus Simplification Package’ (released 26th February 2025) has sparked concerns that the EU may be scaling back key ESG reporting requirements, potentially undermining the very risk management principles these regulations were designed to enforce. The revisions, which affect frameworks such as the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), and the EU Taxonomy, aim to reduce administrative burdens on companies. Yet, investors managing €6.6tn in assets have warned that these changes could weaken the EU’s sustainable finance framework, eroding transparency and increasing long-term risk exposure.

Reducing the scope
The European Commission’s Omnibus proposal introduces a significant recalibration of corporate sustainability reporting obligations, reducing the scope of the CSRD by approximately 80%. Sharp increases in the company size thresholds are proposed with the employee requirement rising from 250 to 1,000 and the net turnover threshold for non-EU parent companies tripling from €150m to €450m within the EU. The foundational principles of assessingmaterial impact, risks, and opportunities remain, although the proposal also introduces a ‘value chain cap,’ limiting the extent to which large firms can demand sustainability data from smaller value chain partners, a move aimed at mitigating disproportionate reporting pressures. Additionally, sector-specific reporting standards and the future requirement for reasonable assurance will be scrapped. Beyond the CSRD, the proposal extends the CSDDD due diligence review cycle from annual assessments to once every five years, while the EU Taxonomy will become voluntary for most companies, except for the largest issuers.This potential regulatory shift comes at a time when the financial consequences of ESG failures are becoming more pronounced. A stark example is The People’s Pension, one of the UK’s largest pension funds, withdrawing £28bn from State Street due to concerns over the asset manager’s perceived retreat from ESG commitments. The move highlights a growing trend of capital flight from firms failing to meet sustainability expectations, reinforcing the reality that ESG risks are now directly linked to financial outcomes. Although the proposal is yet to be set in stone, for IROs the message suggests that regulatory compliance may not be sufficient to mitigate ESG risks. Investors require sustainability transparency to safeguard investor confidence, prevent capital flight, and ensure long-term resilience in an increasingly riskconscious market. The evolving ESG reporting landscape in the EU presents businesses with significant complexities and uncertainty. While regulatory simplifications may reduce compliance burdens, they also create ambiguity around long-term sustainability commitments and investor expectations. Companies must now assess these adjusted requirements, or for those no longer in scope, take a step back and review how their progress to date can be integrated into voluntary frameworks. The challenge is to balance the need for transparency while ensuring that meaningful sustainability initiatives remain a priority.

What lies ahead?
The Omnibus package consists of two distinct proposals, each requiring approval through the co-decision process involving the European Parliament and Council. This means further modifications could arise before they are enacted into law.