The EU Omnibus Proposal: A Step Back or a Smarter Step Forward?
The European Union (EU) has long been at the forefront of sustainability regulations, driving companies toward greater transparency, accountability, and climate-conscious operations. But with the recent Omnibus Proposal, the EU has taken a surprising turn by relaxing some of its most ambitious sustainability directives.
The EU Omnibus proposal includes amendments to key regulations such as the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), the EU Taxonomy Regulation, and the Carbon Border Adjustment Mechanism (CBAM). This comprehensive package aims to streamline existing sustainability directives for businesses operating within the EU. This ambitious initiative seeks to cut red tape, reduce administrative burdens, and promote a more competitive and sustainable business environment.
Understanding the Omnibus Proposal: Key Highlights
The current regulatory landscape is fragmented, with different rules and standards across member states. The proposal seeks to harmonize these regulations, providing a more coherent framework for businesses. Existing sustainability regulations have been criticized for being overly complex, particularly for SMEs.
The Omnibus Proposal aims to reduce administrative burdens by 25% for all businesses and 35% for SMEs through:
- Revised Reporting Requirements: Approximately 80% of current “in-scope” entities will no longer have a reporting requirement. Only companies with more than 1,000 employees and €50 million turnover will be subject to reporting. Additionally, there is a proposed two-year delay for reporting, for which the European Parliament is scheduled to vote on April 1, 2025. For taxonomy regulations, only entities with more than 1,000 employees and €450 million in net turnover will be required to undertake reporting.
- Voluntary Reporting Standard for SMEs: The proposal introduces a voluntary reporting standard for SMEs, based on the SME standard developed by the European Financial Reporting Advisory Group (EFRAG). This standard limits the information that larger companies can request from their smaller suppliers.
- Simplified Due Diligence: The proposal simplifies the CSDDD, making it easier for companies to comply with due diligence requirements and support responsible business practices. Reporting is delayed from 2027 to 2028.
- Carbon Border Adjustment Mechanism: The proposal strengthens the carbon border adjustment mechanism, ensuring fairer trade and reducing carbon leakage. Small importers would be exempt from reporting, representing a ~90% reduction in current “in-scope” participants.
Comprehensive Overview of Proposed Changes
Here are some of the changes proposed:
| Directive/Regulation | Aspect | Original Requirement | Omnibus Proposal | Implications |
| CSRD | Employee Threshold (EU Companies) | Companies with >250 employees | Companies with >1,000 employees | Reduces reporting entities by ~80% |
| Turnover Threshold (Non-EU Companies) | >EUR150M Turnover | >EUR450M Turnover | Limits the number of non-EU companies subject to reporting requirements | |
| Implementation Timeline | Wave 2 and 3 companies reporting in 2026 and 2027 | Wave 2 and 3 companies reporting in 2028 and 2029 | Provides additional preparation time for affected companies | |
| Assurance level | “Reasonable assurance” to be phased in | “Limited assurance” is sufficient | Potential decrease in report credibility | |
| Sector-Specific Standards | Sector-specific standards to be drafted | Removal of sector-specific standards | Simplifies the reporting process; may reduce relevance for certain industries. | |
| CSDDD | Initial Compliance Deadline | Initial compliance:
2027 | Initial compliance:
2028 | Provides additional time for legislative adaptation and corporate compliance. |
| Scope of Assessment | Value chain | Direct (Tier 1) suppliers only | May overlook indirect supplier impacts | |
| Assessment Frequency | Annual monitoring | Monitoring ~every five years | Less frequent evaluations and potential delays in identifying issues. | |
| Contract Management | Terminate contracts with suppliers in violation of standards | Suspend contracts with suppliers in violation of standards, and attempt remediation | Encourages remediation over termination; may prolong corrective actions | |
| Penalties | >5% of global turnover | No universal penalties | Potential variability in enforcement | |
| EU Taxonomy | Turnover Threshold | Mandatory for all companies reporting to CSRD | Companies reporting to CSRD with >EUR450M turnover | Fewer companies required to report, potential gaps in sustainability data. |
| Compliance Reporting | Full compliance with all technical screening criteria required | Introduction of the “partial taxonomy alignment” concept | Allows reporting on partial compliance, may encourage gradual improvements. | |
| CBAM | Importer Threshold | All importers included | Exempt importers of <50 metric tons annually | Exempts ~90% of importers; still covers 99% of emissions |
While the Omnibus Proposal aims to enhance business competitiveness by reducing regulatory burdens, it raises concerns regarding the EU’s climate change commitments. The reduction in mandatory reporting and due diligence requirements could lead to decreased transparency and accountability, potentially hindering progress towards sustainability goals. Critics argue that these changes may undermine efforts to monitor and mitigate environmental impacts effectively.
Balancing Simplification with Sustainability
The Omnibus Proposal presents an opportunity to rethink the approach to sustainability compliance. While simplification can alleviate administrative burdens, it is crucial to ensure that such measures do not compromise the integrity of environmental and social governance. Businesses must proactively integrate sustainability into their core strategies, going beyond mere compliance to drive genuine environmental stewardship and social responsibility.
Moreover, the delay in the implementation of the CSRD and CSDDD reporting requirements could create uncertainty for businesses that have already invested in compliance efforts. These companies may face challenges in adjusting their reporting strategies to align with the new timelines and requirements.
On the other hand, the proposed changes to the CBAM are likely to enhance the EU's efforts to combat carbon leakage and promote sustainable practices. By simplifying the reporting process and adjusting thresholds, the EU is making it easier for businesses to comply with the CBAM while maintaining a level playing field for domestic and imported goods.
How Can Tech Mahindra Help You?
Tech Mahindra, with its extensive expertise in green transformation, is well-positioned to assist businesses in navigating these regulatory changes. Here are a few ways Tech Mahindra can support your organization:
- i.Sustain.NXT: Tech Mahindra offers advanced digital solutions to streamline compliance with sustainability reporting and due diligence requirements. This platform can automate data collection, reporting, and analysis, reducing the administrative burden on businesses.
- Regulatory Screener Tool: Tech Mahindra's regulatory screener tool is designed to help businesses navigate the complexities of evolving regulations, such as EUDR, CBAM, ESPR, plastic packaging requirements, etc. Leveraging advanced algorithms and extensive databases, it offers real-time insights into regulatory requirements, determining their applicability to clients.
- Sustainability Consulting: With a team of experts in sustainability and regulatory compliance, Tech Mahindra can provide custom consulting services to help businesses understand and effectively implement the new EU directives.
- Training and Support: Tech Mahindra offers instructor-led training programs to educate and train businesses on the new regulatory requirements and best practices for sustainability reporting and due diligence.
