Omnibus: key aspects of the European Commission's proposal

European sustainability legislation presents complex challenges for businesses. The Omnibus proposal should change this, according to the European Commission. The proposal aims to simplify the regulatory framework, reduce the administrative reporting burden and limit the trickle-down effect of these obligations onto smaller companies. Below, we discuss the Omnibus proposal's key implications for the Corporate Sustainability Reporting Directive (CSRD), Corporate Sustainability Due Diligence Directive (CSDDD), Accounting Directive and Audit Directive.

Formal scope of reporting requirements

The Omnibus proposal aims to limit the CSRD's formal scope to only apply to undertakings with more than 1,000 employees on average during the financial year. In addition, the undertaking still needs to have a net turnover above EUR 50 million and/or a balance sheet above EUR 25 million in that financial year. This amendment is expected to reduce the number of undertakings subject to mandatory sustainability reporting requirements by about 80%.

Entry into application of sustainability reporting requirements

If the Omnibus proposal is adopted, the CSRD's application to the financial year 2024 will be removed entirely. As a result, the sustainability reporting requirements will not be applicable until the financial year 2025.

Parallel to the Omnibus proposal, the European Commission also published a proposal to grant a two-year postponement to companies currently required to report in 2026 or 2027 (on the financial year 2025 or 2026). These companies will then have to publish their sustainability reports in 2028 or 2029 (on the financial year 2027 or 2028).

Companies in EU Member States that have already implemented the CSRD will only be affected by these changes once national laws have been amended accordingly. As the Dutch implementation of the CSRD is still in draft form, the Dutch legislator can incorporate these changes into the draft implementation legislation relatively easily.

Modified reporting standards

The European Commission wants to revise the first set of European Sustainability Reporting Standards (ESRS) within six months of the Omnibus proposal's adoption. The goal is to simplify and streamline the standards in the interests of legal certainty, by substantially reducing the number of mandatory datapoints. In connection with the reduction of the number of datapoints, the European Commission also decided not to introduce any sector-specific standards.

The Omnibus proposal also contains a few further changes to the sustainability reporting standards. For example, the European Commission seeks to introduce voluntary standards for undertakings not subject to reporting requirements. These standards will be similar to the voluntary sustainability standard for SMEs (VSME) developed by EFRAG.

Sustainability report audits

With regard to the audit requirements, the European Commission proposes to maintain the limited assurance initially applicable under the CSRD. Accordingly, the possibility of moving to a more extensive reasonable assurance in the future will be removed. The European Commission believes that this will prevent a future increase in costs for reporting undertakings.

Due diligence harmonisation level

In contrast to the CSRD, the CSDDD does not, in principle, require implementation based on maximum harmonisation. According to the current CSDDD, although EU Member States are not permitted to introduce any additional requirements as regards certain elements of the due diligence process, they are otherwise free to introduce requirements that supplement and/or are stricter than those prescribed. In its consultation response to the Responsible International Business Conduct bill (Wetvoorstel internationaal verantwoord ondernemen) (in Dutch), which serves to implement the CSDDD, Houthoff indicated that the absence of a maximum harmonisation requirement is not conducive to the creation of a 'level playing field' within the EU. It is therefore up to the national legislator to continue to act in the spirit of a 'level playing field'.

From a similar perspective, the Omnibus proposal prohibits the introduction of stricter rules on various subjects, to prevent a fragmented legal and regulatory landscape within the EU and to limit the administrative burden.

Modifications to the due diligence process

The due diligence process will be amended in various respects, including a limitation of the stakeholder concept and a reduction of the measures to be taken. For example, only 'direct' business relationships will be included in the audit, with 'indirect' business relationships only being audited under specific circumstances. In addition, the intervals at which the due diligence process must be internally audited will be extended from one year to five years, again to reduce the administrative burden.

Amended due diligence liability regime

The Omnibus proposal removes the CSDDD's EU-wide civil liability regime with the aim of protecting companies against overcompensation. The proposed changes maintain the requirements for ensuring effective access to justice. The right to full compensation in the event of liability due to a company's failure to comply with the due diligence requirements will be maintained.

Modifications in the context of the EU Taxonomy

Although the Omnibus proposal does not directly change the EU Taxonomy, it introduces an 'opt-in' regime for large undertakings with more than 1,000 employees and with a net turnover not exceeding EUR 450 million which claim that their activities are aligned or partially aligned with the EU Taxonomy. This approach will eliminate certain costs of compliance with the EU Taxonomy. In addition, the Omnibus proposal allows these undertakings to report on activities that meet certain EU Taxonomy technical screening criteria.

If you have any questions about these changes and how they affect your organisation, please contact Jacques Kröner or Yentl Coenradie.