Every day for the past fortnight, there has been a new announcement about the European Union’s plans for an ‘omnibus’.
Letters, statements and headlines abound, all discussing the different ways the European Commission could, should and will amend its existing sustainable finance regulation to make life easier for the private sector.
An omnibus is a rarely-used instrument that allows the EU to change multiple laws with a single piece of new legislation.
In this instance, it is being used – in part, at least – as a way to fulfil the EU’s promise under the Budapest Declaration to slash reporting requirements for companies by 25% by the middle of 2025, in a bid to make them more competitiveness on the global stage.
When Commission president Ursula von der Leyen announced the plans in November, she said the omnibus would focus on simplifying three laws: the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CS3D) and the Taxonomy Regulation.
She stressed that “the content of the laws is good” and wouldn’t be changed. “We want to maintain it, and we will maintain it,” she told a press conference.
“But the way we get there, the questions we are asking, the data points we are collecting – thousands of them – is too much. Often redundant, often overlapping. So it’s our task to reduce this bureaucratic burden without changing the correct content of the law.”
Going beyond efficiency measures
The first sign the omnibus was about more than just von der Leyen’s desire to reduce inefficiencies was the inclusion of the CS3D in the package.
“CS3D doesn’t fit with the goals of the Budapest Declaration because it just mandates what companies were meant to be doing under existing UN and OECD rules,” says Richard Gardiner, the head of EU regulation at the World Benchmarking Alliance.
“So it is designed not to add to the reporting burden.”
Gardiner is referring to the United Nations’ Guiding Principles on Business and Human Rights, and the OECD’s due diligence rules, which have both been soft law for years.
Nonetheless, French government authorities penned a letter last week calling for “an indefinite postponement” of CS3D as part of the EU’s rethink.
They argued the directive has become too strict since it was approved by Member States last year, and now seems to be seeking to hold companies responsible for the outcomes of their due diligence, rather than just the process itself.
Likewise, the European Roundtable for Industry (ERT), whose members include the chief executive officers and chairs of around 60 major companies, said CS3D should be “put on halt” while its impact on the competitiveness of European firms is assessed.
“It’s become an opportunity to simply get rid of anything companies don’t like”
Richard Gardiner, head of EU regulation at the World Benchmarking Alliance
German business association BDA is calling for the requirements to be restricted to direct suppliers only, not full value chains.
And signs the omnibus marks a much bigger wave of deregulation in sustainability are becoming clearer, with public campaigning from politicians, governments and business interests.
The European People’s Party, von der Leyen’s party, is demanding that CSRD, CS3D, and the Taxonomy are all postponed by at least two years. It also wants the Carbon Border Adjustment Mechanism added to the slate.
“In that time, an omnibus regulation should limit the scope of these laws to the largest companies with more than 1,000 employees, eliminate the indirect effect to SMEs, align legislative overlaps that currently lead to double reporting and significantly reduce the reporting obligations for large companies by at least 50%,” it said in a letter.
Other groups are pushing for the addition of everything from the EU Batteries Regulation and Emissions Trading Scheme, through to the Critical Raw Materials Act, the Net Zero Industry Act, and rules relating to tax, energy and gender diversity.
“This whole thing has bypassed the usual EU process, which requires the Commission to demonstrate the need for regulatory change, using objective analysis and broad consultations,” says Gardiner.
“Instead, this is a political move to deregulate, and it’s become an opportunity to simply get rid of anything companies don’t like, regardless of whether it contributes to the stated goal of cutting reporting requirements.”
What do investors want?
A number of the organisations calling for changes have argued that the laws don’t meet their original goal: to help investors manage risks and allocate capital to the climate transition.
It laid out a raft of proposed changes to the sustainable finance agenda: SFDR, the Paris-Aligned Benchmark labels, climate transition plans and the Taxonomy, among others.
While some of the requests focus on simplification, many seek to make it easier for investors to allocate capital to polluting companies through sustainability and transition strategies.
Representatives from major asset managers DWS and Norges Bank Investment Management are cited as contributors to the LSEG paper.
Most investors, however, are refusing to discuss publicly how they feel about the omnibus agenda. Major responsible investment names such as APG, Allianz Global Investors and Legal & General Investment Management (LGIM) either declined to comment or did not respond to a request to be interviewed for this article.
The Dutch Pensions Federation and the European asset manager association EFAMA have pointed out the links between the CSRD and investor reporting requirements under the Sustainable Finance Disclosure Regulation, but have otherwise not opined strongly on the omnibus initiative.
IPE understands many investors are preparing to sign a letter coordinated by civil society, calling for sustainability rules to be revised but safeguarded.
Jeroen Nijhoff, corporate sustainability officer at Dutch sustainable investment house Robeco told IPE the EU rules haven’t been in place for long enough to establish how useful the disclosures will be.
“It is a bit too early to draw conclusions,” he said, adding: “In the longer term, we do see added value in the information related to CSRD and the taxonomy.”
Overall, Nijhoff concluded, Robeco supports the effort to streamline and simplify the frameworks.
A cull of CSRD
It’s not clear how the European Commission plans to measure what a 25% reduction in reporting requirements looks like, but the current lobbying requests appear to be aiming for a more ambitious cut.
“It’s the most objective way of looking at the sustainability of companies”
Maurits Heldring, a senior responsible investment adviser at PGGM
In their letter, the French authorities called for the number of CSRD-related indicators to be “significantly lightened” and limited to climate-related issues, for now at least.
It also wants companies to be allowed to keep more information private, including all capital expenditure plans, for competitiveness reasons.
Other groups have called for a redesign of the European Sustainability Reporting Standards, and to move CSRD over to a ‘comply or explain’ regime.
Voluntary taxonomy
ERT argued in its letter that taxonomy disclosures were of low value to investors, because the framework is too vague and doesn’t generate comparable data.
“This means that companies invest significant time and resources in disclosures that are then in fact disregarded by their prime user group,” it said.
French business association AFEP and German business association Deutsches Aktieninstitut are asking for the taxonomy to be made completely voluntary.
“That would be the death of the taxonomy,” says Maurits Heldring, a senior responsible investment adviser at Dutch pension giant PGGM, which uses taxonomy disclosures and definitions to inform its sustainable investment methodology.
“It’s actually a very useful tool for investors,” says Heldring.
“It’s not perfect, but it’s the most objective way of looking at the sustainability of companies – the criteria are clear and stringent, which helps to avoid greenwashing.”
“In my view, nobody would use it if it was voluntary, so that would be the worst option.”
Heldring is more bullish about another change to the taxonomy that’s been floated in recent weeks: that the Do No Significant Harm (DNSH) and minimum social safeguard elements should become voluntary, rather than the whole framework.
Currently, the regulation says a business activity that demonstrably contributes to an environmental objective – climate mitigation, say, or biodiversity – must also prove it doesn’t undermine any others (DNSH) and that it complies with basic norms around human rights and working conditions (minimum social safeguards) before it qualifies as fully taxonomy-aligned.
These two final hurdles are often the hardest to clear, and result in a lot of companies falling outside the taxonomy’s coverage.
Removing them from the mandatory requirements, some argue, could make it easier for investors to allocate to activities that contribute to specific environmental strategies, like net zero. Then companies could voluntarily choose to pass DNSH and social safeguards criteria if they want to call themselves fully “sustainable”.
“That could be a temporary solution while those most difficult parts develop,” says Heldring. “It would still be very valuable for us to have information about companies’ taxonomy-eligible activities when we’re making decisions, even if they’re not fully sustainable.”
A plan is taking shape
In a leaked document seen by IPE last week, the Commission said its “first” omnibus would remain focused on sustainability disclosures and due diligence.
Senior officials have suggested in recent days that more omnibuses may be created to deal with other parts of the regulatory agenda, including green real-economy policy.
More will become clear on February 26th, when the Commission is expected to unveil the first legislative proposal.
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