How an Omnibus Regulation Could Reshape the EU’s ESG Reporting

Summary

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The EU is currently engaged in major discussions and proposals to restructure its sustainability regulations. This includes merging the EU Taxonomy, CSRD, and CSDDD into one omnibus regulation, aiming to reduce bureaucracy, particularly for SMEs. Officials from the EU, Germany, and France have made a number of recommendations. For CSRD, key points are reducing the number of data points, providing alleviations for SMEs and a new small mid-cap category, postponing the reporting by two years, and refraining from sector-specific standards. Furthermore, there are plans to simplify CBAM and add reimbursement for exports.

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The first Omnibus package will be discussed at the Commission meeting on February 26th.

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While these developments may result in a weakening of regulation in some form, it is important to note that there is still a widespread commitment to adopting ESG reporting. The topic of climate change will continue to feature prominently, therefore getting the basics right and doing so in an efficient way is a no-regret move. With forward earth as a partner on your side, you can always be sure that our experts are constantly monitoring the latest regulatory developments relevant for carbon data management and embed important changes into our product.

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What has happened so far?

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8.11.24: EU President von der Leyen proposes restructuring the EU Taxonomy, CSRD, and CSDDD into a single piece of regulation through an omnibus proposal (November) (Source: Forbes).

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‍17.12.24: Letter from German ministries containing several proposals for reforming the CSRD and EU Taxonomy (Source: Table Media).

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‍2.1.25: Letter from German chancellor Scholz to von der Leyen in which he asks, among other things, for a two year delay and higher thresholds (Source: Table Media).

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‍17.1.25: The EPP, which is the EU's largest party, issues a position paper calling to weaken and suspend sustainability regulation by at least two years (Source: EPP).

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‍20.1.25: France calls for a massive regulatory pause in the EU, a review of legislation including the CSRD (Source: Politico).

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‍24.1.25: A leaked draft mentions “CWP omnibus proposals and other key simplification measures” which suggests updates following the commission work programme 2025 on February 11 (Source: Table Media).

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‍28.1.25: Jordan Bardella, leader of the French RN, writes to the EPP, ECR, and ESN groups and offers them a "coalition to suspend the Green Deal" (Source: Table Media).

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‍29.1.25: The EU Commission publishes a communication piece called "A competitive compass for the EU". It announced an “unprecedented simplification effort”, particularly for SMEs and a newly created group of small mid-caps. This will start with the first set of Omnibus packages in February (Source: European Commission).

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‍4.2.25: A coalition of investors and organizations representing €6.6 trillion in assets urges the EU to maintain the core objectives of its sustainable finance regulations, including the EU Taxonomy, CSRD, and CSDDD (Source: UN PRI).

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‍6.2.25: The International Sustainability Standards Board (ISSB) writes the EU to advocate for aligning the CSRD with its own sustainability reporting standards (Source: Responsible Investor).

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What changes are expected?

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So far, nothing has been decided. In the letters published, a number of suggestions were made which are summarized below:

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Substantially reducing the number of ESRS data points

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Context: The first set of sector-agnostic ESRS standards encompasses over 1,100 data points in total (Source: EFRAG):

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• When von der Leyen proposed restructuring the EU Taxonomy, CSRD, and CSDDD into a single piece of regulation through an omnibus proposal the stated goal was to reduce the bureaucratic burden without changing the content of the law. The current set of over thousand data points, often redundant and overlapping, is too large.
• The letter of German Chancellor Scholz and the communication text by the Commission contained the target to reduce data points by 25% for all companies and 35% for SMEs.
• The EPP would like to see the number of data points reduced by at least 50% for large companies.
• A similar sentiment was also voiced by the German ministries who suggested the LSME-draft (for the upcoming standard for listed SMEs) which has around half the number of data points as ESRS should replace ESRS. VSME, the voluntary standard, could in turn replace LSME. VSME should focus on key data points, which even sole traders can easily provide: scope 1 and 2 GHG emissions [ESRS E1-6], energy consumption [ESRS E1-5] and resource use [ESRS E5-5].
• The French authorities, despite having transposed ESRS into national law already, would like to see a drastic reduction in the number of indicators.

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Providing alleviations for SMEs as well as new small mid-cap category

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Context: Listed SMEs need to report later and fewer data points than large companies. For other SMEs, a voluntary disclosure standard is being developed which should serve as a framework for requests from customers. 

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• In the context of the omnibus regulation, the Commission plans to propose a new definition of small mid-caps. This category between SMEs and large companies is supposed to benefit from tailored simplification similar to SMEs. This was also requested by the French authorities.
• The Commission aims to combat “trickle-down effects to prevent smaller companies along the supply chain from being subjected in practice to excessive reporting requests”.
• Similarly, the German ministries stressed the importance of the LSME value chain cap which sets limits on the reporting obligations related to the value chain. Furthermore, they propose an increase in the thresholds for large undertakings with regard to sustainability reporting.

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Postponing CSRD by two years

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Context: The first group of companies affected by CSRD will have to start reporting this year on the financial year 2024. In the financial year 2025, large companies not already subject to the NFRD would have to start reporting.

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• German ministries and German Chancellor Scholz propose to delay the reporting obligation of companies subject to first reporting as of financial year 2025 or later by two years. This is also supported by the French authorities.
• The EPP even called for the implementation of the CSRD, CSDDD, and CBAM to be postponed by at least two years.

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Refrain from introducing sector-specific ESRS standards

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Context: EFRAG is working on developing sector-specific ESRS for 9 high impact sectors such as Oil & Gas and Road transport. Their adoption was originally scheduled for 2024 and had been postponed to 2026 (Source: EFRAG):

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• The French authorities explicitly called for their discontinuation to preserve the uniformity of application of the directive.
• Similarly, German ministries propose to avoid introducing sector specific standards calling them burdensome.

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Not requiring GHG reduction targets in line with the Paris Agreement

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Context: ESRS E1-1 asks companies to disclose how their mitigation efforts ensure compatibility with limiting global warming to 1.5 °C in line with the Paris Agreement and with the objective of achieving climate neutrality by 2050.

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• The French authorities suggest changing ESRS E1-1 which is the section about transition plans for climate change mitigation. Rather than requiring targets for GHG emission reduction to be in line with the Paris Agreement, companies should only need to compare their targets with a trajectory aligned with the Paris Agreement.

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Simplifying CBAM for smaller companies and reimbursing EU companies for CBAM goods exported

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Context: Companies producing CBAM goods in the EU are subject to the European Union Emissions Trading System (EU ETS). When they export goods, they compete with producers abroad that do not fall under the EU ETS resulting in a cost advantage.

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• The Commission plans to consider the extension of scope to further sectors and downstream products.
• The commission plans measures to address impacts on exports of relevant goods. Similarly, it suggested a reimbursement for CBAM goods exported out of the EU.
• The Commission is planning to simplify CBAM for smaller market players which also aligns with German Chancellor Scholz’ calls for a reduction of bureaucracy.

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When will we know more?

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More clarity is expected on February 26th when the omnibus proposal is planned to be discussed at the Commission meeting (Source: European Commission):

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What should companies do?

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The uncertainty surrounding ESG regulation is a challenge for companies who need to invest time and resources into preparing for upcoming regulation and may be concerned to see their efforts rendered unnecessary. It is therefore important to keep two things in mind:

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1) ESG reporting and carbon management isn’t going away. While it seems likely that there will be delays and reductions of reporting obligations, there is a lot that will not disappear.

For example, while the Listed SME draft is less comprehensive than the ESRS standards which it could replace, its requirements relating to GHG emissions and energy consumption and mix are very similar. Even the Voluntary SME draft requires a disclosure of at least Scope 1 and 2 GHG emissions as well as renewable and non-renewable fuel and electricity consumption. The ISSB Standards ask for a Scope 1, 2, and 3 footprint in accordance with the GHG Protocol. Collecting such data is a no-regret move.

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2) ESG and carbon management have benefits beyond fulfilling regulatory requirements. Be it appealing to financial markets and customers or preparing for transition risks, one can take action for many reasons. Companies should therefore be aware of regulatory developments and appreciate the time and flexibility that changes may grant them but not let it get them off track.

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If you need support, forward earth can help you with a software solution that is always held up to date with the most important regulatory carbon data management requirements by our experts.

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