Leo Donnachie
Senior Policy Manager - Sustainable Finance
The first of a series of sustainable finance Omnibus proposals, published on 26 February, would drastically reduce the number of companies required to disclose vital climate data if implemented. We outline the changes, why they matter, and what happens next.
The European Commission published the first of its Omnibus packages, intended to streamline and consolidate the EU’s sustainable finance framework. This includes the Corporate Sustainability Due Diligence Directive (CSDDD), Corporate Sustainability Reporting Directive (CSRD), and the Delegated Acts of the EU Taxonomy.
Ahead of the announcement, more than 160 asset owners and asset managers signed a joint statement which called on the EU to “preserve the integrity and ambition” of the framework. In the statement, investors recognised the need to recalibrate as the regulations move into implementation stage, though many voiced concerns about the potential for a more fundamental rollback of core regulations as proposals became clearer.
In many cases, those concerns proved to be correct. Changes announced last week amount to a significant rollback of core legislation in several areas, which could hinder investors’ access to decision-useful data and creates legal uncertainty.
This contrasts with the Clean Industrial Deal (CID), published that same day, which set out a welcome and bolder vision for decarbonising the EU economy and scaling investment in climate solutions. It committed EUR 100 billion in public financing and recognises the need to scale this to EUR 750-800 billion per year between 2025 and 2030, requiring a massive mobilisation of private capital supported by ‘long-term regulatory stability’.
Transparency and disclosure alone are not enough to mobilise finance – they must be accompanied by incentives and price signals that direct finance towards transitioning and sustainable assets. Nevertheless, they are important prerequisites. Investors and corporates alike need clear and actionable data to ensure this private capital flows where it is needed and to attract financing for companies’ transition plans.
We take a closer look at the Omnibus updates below, though it’s important to note that this is just one stage in the process. The proposals are now being sent to the European Parliament and the Council, which will likely lead to further changes, and potentially some protracted and heated discussions. There will be more opportunities ahead to reiterate the value of disclosures and due diligence in enabling companies and investors to identify risks, capture opportunities, and finance the EU’s twin goals of decarbonisation and competitiveness. Doing so will be vital.
‘Stop the clock’
The Omnibus proposals were prompted by the seminal Draghi report and the Commission’s commitment to reduce reporting requirements by at least 25% - though these changes go much further.
If enacted, the scope of companies captured under the CSRD would be reduced by as much as 80%. While the most systemically important and highest-emitting companies will largely still qualify, including Climate Action 100+ focus companies, this looks set to have implications for companies down the value chain.
A new ‘stop the clock’ proposal would give companies that were due to start reporting next year, or in 2027, an additional two years before they need to disclose. Investors, as key users of this reporting, are likely to be most impacted by rollbacks to the scope and implementation timelines.
This comes despite the fact that sustainability reporting obligations for investors under the SFDR remain unchanged and, for now at least, operate on a mandatory basis. A far-reaching review of the SFDR is due for publication in late 2025. Incomplete information from corporates has long been cited as the key barrier facing investors when acting on this obligation, so it remains unclear how all of this will work in practice.
Sector standards abandoned
Changes to the scope of CSRD will have implications for the breadth of companies that are disclosing climate transition plans. Under CSRD, companies are required to disclose these plans on a ‘comply or explain’ basis. Fewer companies disclosing these plans will reduce the availability of decision-useful data for investors.
Additionally, while companies in scope of CSDDD will still be required to adopt a transition plan and include ‘implementing actions’, the package has removed requirements to put these plans ‘into effect.’ Exactly how this will work remains unclear, but there is real concern that these changes could reduce incentives for meaningful action to implement transition plans.
Disappointingly, requirements to adopt sector-specific standards have been abandoned, despite being a key ask from investors and especially relevant for high-impact and carbon-intensive sectors. Our recent paper, informed by IIGCC members, stressed the importance of sectoral transition pathways and action plans in tandem with entity-level transition plans. Notably, they have been included in the Clean Industrial Deal.
In contrast, the International Sustainability Standards Board’s (ISSB) climate standards incorporate sector-specific topics and disclosures through its accounting standards board (SASB), creating the risk of divergence - though the EU double materiality perspective has been preserved.
Such a divergence could hinder action and damage the CSRD’s hard-earned reputation as the world’s most ambitious climate standard.
Voluntary Taxonomy reporting
The number of companies required to disclose the alignment of their activities with the EU Taxonomy would also reduce under new proposals, though the structure and criteria remain unchanged. Reporting would become voluntary for any company with fewer than 1,000 employees and EUR 450 million in turnover. In other words, all but the very largest in the EU.
For investors considering climate solutions, recommended by the Net Zero Investment Framework, the Taxonomy has become a valued tool for identification and assessment. A reduction in scope could reduce its usefulness for assessing the alignment of company activities with climate objectives.
That said, companies not in scope looking to secure finance should still be incentivised to report, particularly if green and transition-focused funds continue to use ‘Taxonomy alignment’ as a metric or if fund categories are introduced as part of the SFDR review.
On the other hand, associated proposals to simplify the Taxonomy are encouraging and could improve the usability challenges flagged by investors and companies. Allowing ‘partially aligned’ activities to be disclosed, for example, would provide more flexibility to include a wider range of climate solutions in the scope of fund-level reporting and help to scale transition finance. Our climate solutions guidance outlines this potential in more detail.
Expect further scrutiny ahead
Though disconcerting, these proposals are far from being set in stone. Given the intensity of debates on recent legislation, such as the CSDDD and EU deforestation regulation, we can expect these new proposals to face heated scrutiny, amplified by a more polarised Parliament.
In an increasingly challenging political and economic environment, the reasoning behind these new proposals is valid. Unfortunately, the Commission cannot so easily ‘stop the clock’ on global temperature increases and the closing window for action between now and 2050.
Decarbonisation and the EU’s transition remain a key lever to boost economic growth, drive competitiveness, and enhance resilience. It will be vital to keep making this clear as future debates unfold in this political cycle. As a pioneer, the sustainable finance framework understandably needs fine-tuning and any unintended consequences addressed: but it must do so while preserving the core reporting requirements and mechanisms that encourage the transparency investors need for finance to flow.
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