The European Union (EU) has been at the forefront of global efforts to enhance corporate sustainability and accountability through initiatives like the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD). However, recent reports from Responsible Investor (RI) and other sources suggest that the upcoming EU Omnibus proposal may significantly alter the scope and requirements of these directives. This article explores the potential changes, their implications, and the broader impact on sustainability reporting and due diligence in the EU.

Key Points of CSRD, CSDDD, and the Incoming EU Omnibus Proposal

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Analysis of the Proposed Changes

1. Scope Reduction for CSRD The most significant change under the Omnibus proposal is the potential exclusion of companies with fewer than 1,000 employees from CSRD reporting requirements. This would remove approximately 85% of companies currently in scope, significantly reducing the directive’s impact. Critics argue that this move would undermine the EU’s sustainability goals and limit transparency for investors and stakeholders.
2. Shift from Double to Single Materiality The double materiality principle, which requires companies to report on both financial and environmental/social impacts, is a cornerstone of CSRD. However, the Omnibus proposal may refocus on single (financial) materiality, aligning corporate reporting more closely with traditional financial metrics. This shift could dilute the emphasis on sustainability and social responsibility.
3. Weakening of CSDDD Provisions Key elements of CSDDD, such as climate transition plans and civil liability, are reportedly under discussion. If these provisions are weakened or made optional, it could reduce the directive’s effectiveness in holding companies accountable for human rights and environmental violations.
4. Delayed Timeline The Omnibus proposal, initially scheduled for release on February 26, 2024, is now expected in March 2024. This delay suggests ongoing debates and potential disagreements within the European Commission regarding the scope and stringency of the proposed changes.

Implications for Stakeholders

• Investors: Weakening CSRD and CSDDD could harm investors’ ability to assess ESG risks and opportunities, potentially leading to less informed investment decisions and reduced economic competitiveness for the EU.
• Companies: Smaller companies may benefit from reduced regulatory burdens, but large companies could face increased scrutiny and pressure to fill the transparency gap left by exempted firms.
• Civil Society: A shift away from double materiality and reduced civil liability provisions could weaken accountability mechanisms, making it harder to hold companies accountable for environmental and social harms.

Conclusion

The EU Omnibus proposal represents a critical juncture for corporate sustainability and due diligence in Europe. While the proposed changes aim to reduce regulatory burdens, they risk undermining the EU’s leadership in sustainability and accountability. Stakeholders, including investors, companies, and civil society, must closely monitor these developments and advocate for balanced policies that promote both economic growth and sustainable development.

References

1. Responsible Investor (RI) insights on CSRD and CSDDD.
2. UNPRI article: Investors Warn Omnibus Package Could Weaken EU Sustainability Disclosures.
3. European Commission updates on CSRD and CSDDD implementation.