The European Commission has released its first “Omnibus” package, which consists of a package of amendments aimed at making sustainability reporting less burdensome for companies. The package aims to simplify the rules on sustainability reporting and due diligence, in particular for small and medium-sized enterprises (SMEs), as part of efforts to increase competitiveness and reduce administrative costs.

One of the significant changes is amending the Corporate Sustainability Reporting Directive (CSRD). Under the new proposal, only big companies with more than 1,000 employees or with high revenues will be required to comply with strict sustainability reporting requirements. The new change will remove around 80% of companies from the scope of the CSRD. Smaller companies, on the other hand, will come under voluntary reporting under new guidelines adopted by the Commission, which was set by the European Financial Reporting Advisory Group (EFRAG).

Apart from the CSRD, the proposals also touch on other key regulations in the EU’s sustainability framework. These include the Corporate Sustainability Due Diligence Directive (CSDDD), the EU Taxonomy Regulation, and the Carbon Border Adjustment Mechanism (CBAM). The Commission’s objective is to reduce complexity and the number of rules that companies have to comply with, especially small and medium-sized enterprises (SMEs). For instance, the EU aims to cut reporting obligations by 25% for all companies and by 35% for SMEs specifically.

The European Commission believes that these reforms will lower companies’ costs by around €6.4 billion annually, of which €4.4 billion comes from overhauling the CSRD alone. These reforms are intended to lower the administrative burden on companies without compromising sustainability goals.

As part of these efforts, the Commission has also proposed amendments to the European Sustainability Reporting Standards (ESRS). The amendments are meant to reduce the number of data points that must be disclosed by companies, and sector-specific standards will no longer be introduced. The proposal maintains limited assurance requirements on sustainability reports under the CSRD.

The CSDDD establishes rules for companies to ensure that their activities, in particular in their value chains, do not harm people or the environment. This includes issues like child labour, pollution, deforestation, and emissions. The updated CSDDD proposal delays the implementation for large companies until 2028, limits the scope of due diligence to direct business partners, and reduces the frequency of measuring effectiveness from once every year to every five years.

The EU Taxonomy Regulation aims to classify economic activities that contribute to sustainability goals, such as climate change mitigation and the preservation of biodiversity. Large companies with revenues exceeding €450 million alone will be required to report on their alignment with the Taxonomy under the new proposal. Smaller companies can report voluntarily if they want to tap into sustainable finance.

The CBAM is meant to make imported goods face the same carbon expense as locally produced European goods. The new proposals reduce the number of importers who would be subject to this rule by introducing a threshold of 50 tonnes net mass per importer annually, which would leave 90% of importers outside its scope. However, the Commission ensures that more than 99% of emissions will still be covered by CBAM.

Overall, the new proposals made by the European Commission are seeking to simplify company rules on sustainability for businesses, especially small firms, without undercutting the environmental goals of the EU. The new reforms will be submitted to the EU Council and Parliament and, once the agreement is made, will enter into force.

Conclusion

The European Commission has put forward significant changes to simplify sustainability reporting and due diligence for businesses with a focus on small and medium-sized enterprises mainly. The proposals are aimed at reducing red tape, saving costs, and improving competitiveness while still providing environmental goals. The primary reforms are to restrict the scope of rules like the CSRD, delay implementation dates, and include voluntary reporting for small firms. These reforms are estimated to save firms billions of dollars annually and enable them to meet sustainability legislation requirements.