· 5 min read
An interview by Tim Mohin with illuminem Voice Andreas Rasche
The EU Omnibus proposal is a significant recalibration of corporate sustainability regulations, with sweeping changes to CSRD, CSDDD, CBAM, and the EU Taxonomy. These revisions, aimed at reducing reporting burdens, will see fewer companies disclosing less data, a major shift in the EU’s approach to sustainability governance. But what does this mean for businesses, and how does it shape the future of the EU Green Deal?
To unpack the implications, we spoke with Andreas Rasche a leading expert on corporate sustainability, ESG, and sustainable finance. As a Professor and Associate Dean at Copenhagen Business School, Andreas has dedicated his career to analyzing the intersection of corporate governance, voluntary standards, and regulatory frameworks.
This conversation is the latest installment in our “Deep Dive” series for ESG & Climate News subscribers. I hope Andreas' insights will help make sense of what is a confusing time.
What are some key takeaways companies should take from the Omnibus changes to CSRD, CSDDD, and the EU Taxonomy? How do these adjustments impact compliance strategies for businesses operating in the EU?
Andreas: You can briefly summarize the omnibus proposal by stating: We will see less ESG data from fewer companies. Basically, the EU is proposing to restrict the mandatory part of reporting to big companies (i.e., firms with over 1,000 employees). This means that 80% of businesses would not be in scope for the Corporate Sustainability Reporting Directive (CSRD) reporting any longer. If this were to become law, it is a significant change. Another main issue is that due diligence directive would be restricted to direct business partners (tier 1) unless there are exceptional circumstances. Again, this could be a significant change because studies have shown that human rights and environmental problems are usually beyond tier 1. Finally, it is also important to note what the Commission did not touch, such as Europe’s emphasis on double materiality. However, the associated reporting standards (ESRS) will be trimmed down in terms of the number of data points.
Of course, these changes will impact the compliance strategies of larger firms. First, compliance for the Corporate Sustainability Due Diligence Directive (CSDDD) looks very different under the new proposal, especially with the frequency of periodic assessment moving from every year to every five years. Second, larger firms that are still in scope will need to rethink how to collect value chain data from companies which have been moved out of scope, especially as the proposal limits the amount of data that larger companies can request from smaller value chain actors (this is called the “value chain cap” in the proposal).
The Omnibus reflects shifting political dynamics in the EU, particularly around balancing sustainability ambition with business concerns. What do these changes signal about the EU’s long-term commitment to the Green Deal, and do they suggest a softening or recalibration of its sustainability agenda?
Andreas: The European Commission emphasized that they remain fully committed to the long-term objectives of the Green Deal. However, I think cutting back the reporting regime and due diligence regime in such a significant way will make it harder to collect data that is needed to check where exactly we stand in terms of progress against Green Deal goals. So, I think it is fair to talk about a softening of the sustainability agenda, not necessarily in terms of the end goals but in terms of the process that the EU believes will get us there. But, to be fair, we also need to acknowledge that the EU introduced some measures that push for further change. Most of this is put under the umbrella of the so-called Clean Industrial Deal. This new Deal will, for instance, push investments into clean manufacturing.
Beyond the EU, regulatory shifts often have global ripple effects. How might these Omnibus outcomes influence sustainability regulations and corporate strategies for companies operating in both EU and non-EU markets? Should businesses anticipate a divergence in regulatory expectations between regions?
Andreas: So far, everyone looked at the EU when it came to ambitious sustainability regulations. In a sense, Europe was setting global standards. This is still the case even though Europe’s ambitions in terms of reporting and due diligence have clearly been lowered. The changes in the European frameworks will not remain unnoticed in other regions, and I think it is likely that this will also undercut ambitions elsewhere. I am thinking particularly about Asia, as I do not expect any progress on sustainability regulations in the US under the Trump administration. In fact, what we have seen so far in the US points in the opposite direction. It would be crucial that Europe stays its course in times where the US is deregulating.
Regulatory divergence in terms of regions already exists, as the EU reporting system is a more comprehensive system built around the double materiality principle. This principle remains untouched (for now). In terms of due diligence, the EU is the only region with a proper, hard law system. So, I think the divergence remains. Some within the EU argue for closer alignment with the International Sustainability Standards Board (ISSB). Actually, within the omnibus process, some pushed for such alignment directly, but this would have required further significant changes, which are not included in the current proposal.
While the Omnibus proposal is still in its early stages of the legislative process, it is clear that the EU is shifting its approach, scaling back reporting thresholds and deadlines while doubling down on green industrial investment. The coming months will bring further negotiations, and the final shape of these regulations may still evolve (for example, it took more than 2 years of negotiations to get the original CSRD approved).
For businesses, this moment is critical. They must balance understanding all of the changes and how they impact compliance obligations, keeping true to long-term sustainability commitments, and managing the internal challenges that come with change and uncertainty. The best course of action for companies is to continue with preparations of the systems needed for reporting while closely monitoring the changes in policy.
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This article is also published on LinkedIn. illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.
