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On 26 February, the European Commission issued its Omnibus package setting out proposals for simplification across its sustainability reporting regulations, including the EU Taxonomy, Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CS3D) and the Carbon Border Adjustment Mechanism (CBAM).
In brief
- There are significant legislative changes that apply to CSRD, CSDDD, the EU Taxonomy and the Carbon Border Adjustment Mechanism.
- The proposed changes have been designed to make the EU a more competitive business environment by reducing the regulatory burdens.
- The proposals will be subject to negotiation between the European Parliament and the Member States in the next part of the process.
Derarca Dennis, EY Ireland Assurance Partner and Sustainability Services Lead discusses how the EU Omnibus simplification package aims to reduce regulatory burdens, but it’s bringing key changes to sustainability reporting.
The proposed changes to EU sustainability legislation via the Omnibus simplification package is part of a series of changes designed to make the EU a more competitive business environment by reducing the regulatory burden. These changes will impact the sustainability strategy and reporting agendas of clients with significant business activities in the EU. The proposals will be subject to negotiation between the European Parliament and the Member States in the next part of the process.
What is the Omnibus package?
On the 26th of February, the EU proposed significant changes to sustainability legislation that had been proposed or implemented over the past 5 years.
In simple terms the sustainability reporting legislation accelerated from 30km to 100km per hour over the last 2 years and these proposed changes are a response to a collective view that it was too much change too fast.
The EU developed the regulation initially before there were factors like energy inflation, geopolitical challenges and global trade uncertainty, and regulatory change in other jurisdictions - so the environment in which they were expected to be implemented was very different.
The aim of the omnibus package is to reduce regulatory burdens and enhance competitiveness across Europe, aligning with the EU's Green Deal, now referred to as the Clean Industrial Deal, and the goal of being a Net zero continent by 2050.
While the changes simplify processes, they also introduce uncertainty particularly during the consultation process over the next few months.
What has changed?
There are significant changes that apply to CSRD, CSDDD, the EU Taxonomy and the Carbon Border Adjustment Mechanism.
- Under the CSRD, the main change is a proposal to postpone reporting requirements for 2 years from 2025 to 2027. Additionally, there is a change to the companies that will apply the CSRD. Companies with fewer than 1,000 employees s will no longer be required to report on a mandatory basis.
- Under the CSDDD the main headlines are that CSDDD reporting has been deferred by 1 year to 2028, and the penalty of 5% of global revenues has been removed.
- Under the EU Taxonomy, the main headline is that many companies will no longer need to report. Only companies with 1,000 employees and > €450 Million turnover will be required to report on a mandatory basis.
- The omnibus proposal also covers carbon border adjustment mechanism (or CBAM) and aims to simplify CBAM for a fairer trade. The main change is that now small importers, who import small quantities of CBAM goods entering the EU from third countries will be exempted. This is by the introduction of a threshold of 50 tonnes prior to being required report under the carbon border adjustment mechanism - it is proposed that 90% of reporters could be exempt from obligations.
How will this impact organisations?
The Omnibus package is complex, with a lot of changes across each of the regulations, so the impact will vary across every business. It’s critical for organisations to assess what will impact their plans and continue to monitor progress of these changes.
For each of the regulations, they will need to assess the impact by first establishing whether they are still in scope.
How can EY Ireland support our clients to meet the requirements?
The EU Omnibus package is complex, and we at EY have a really important role in helping our clients to make sense of the changes and how they might be impacted.
One thing that’s really important for all of us – both internally and for our clients – is to remember that the reason that the CSRD was being implemented has not gone away. So now it is critical that we support our clients as they:
- Assess the impact of these changes and adapt their plans,
- Continue to progress certain plans now they have a view on the impacts they can make with this ‘extra time ‘and
- Monitor the progress of these proposals so that we are well placed to advise them as they navigate these uncertain times.
These changes will require public consultations and amendments to existing laws, so staying informed is vital. The challenges that our planet and people face are as real as ever, and businesses still need to be part of the solution. As we await further clarity, it’s critical that we make good decisions that make our businesses more resilient and are good for our planet and society
Summary
The EU recently announced a series of proposed changes to EU sustainability legislation via the Omnibus simplification package. This significant legislative initiative is designed to streamline and simplify existing sustainability reporting requirements and the due diligence framework, reducing the number of companies in scope and making it easier for those businesses in scope to comply while maintaining the overarching goals of environmental sustainability and regulatory transparency.
These proposals will need to go through due process and while uncertainty remains as to the final outcome, we can say with clarity that very significant changes will occur.