Cutting Red Tape or Cutting Corners on Sustainability?

If you’ve been following ESG developments in Europe, you’ll know that regulation has been on turbo mode in recent years. From the Corporate Sustainability Reporting Directive (CSRD) to the EU Taxonomy, the framework of sustainability rules has expanded rapidly—sometimes leaving businesses gasping for air under a pile of reporting requirements.

Now, the European Commission has introduced the Omnibus Regulation Proposal, a sweeping set of amendments to simplify ESG regulations. Officially, it’s all about cutting red tape and boosting EU competitiveness. But dig a little deeper, and you’ll find that some are calling this a strategic streamlining, while others see it as a worrying step towards deregulation.

So, is this a long-overdue clean-up of ESG bureaucracy, or does it risk weakening sustainability standards in the process? Let’s break it down.

🚨 What’s in the EU Omnibus Regulation Proposal?

The word "Omnibus" comes from Latin, meaning "for all" or "containing many things." In legal and regulatory terms, an Omnibus Regulation is a single legislative package that amends multiple laws at once; essentially a one-stop-shop for rule changes. Instead of updating each regulation individually, the EU bundles them into one sweeping proposal.

This approach makes sense in theory. Businesses often struggle with overlapping requirements, complex disclosure standards, and time-consuming compliance efforts. By cleaning up the rulebook, the Omnibus proposal promises to make ESG regulations more efficient and business-friendly.

However, this isn’t just a technical adjustment. Some critics argue that “simplification” is just another word for deregulation, with the potential to weaken corporate accountability and transparency. Others fear that reducing compliance obligations could increase greenwashing risks, making it harder for investors and stakeholders to trust ESG data.

So, is the EU making ESG more practical, or is it rolling back sustainability commitments? Let’s break it down.

1. Corporate Sustainability Reporting Directive (CSRD) – Who Needs to Report?

The CSRD was designed to bring corporate transparency to sustainability issues, ensuring that investors and stakeholders could assess a company’s environmental and social impact. Originally, it applied to companies with 250+ employees, covering both financial and non-financial disclosures.

🔄 What’s changing?

• The Omnibus proposal raises the threshold to 1,000+ employees, effectively exempting around 80% of companies currently required to report.

• Instead of detailed CSRD reports, smaller firms can voluntarily disclose sustainability info using a "lighter" reporting framework.

• The European Commission argues this will ease the reporting burden on SMEs, but critics say it dramatically reduces transparency and risks greenwashing.

2. Corporate Sustainability Due Diligence Directive (CSDDD) – Who’s Responsible for What?

The CSDDD was meant to ensure companies don’t turn a blind eye to human rights and environmental violations in their supply chains. Under current rules, firms with over 1,000 employees and €450 million turnover must conduct annual due diligence across both direct and indirect suppliers.

🔄 What’s changing?

• The deadline is pushed to 2028—a year later than planned.

• Companies will only need to assess their direct (Tier 1) suppliers, not their entire value chain.

• Instead of yearly checks, firms will only need to review due diligence every five years.

  
  

This is where critics are getting worried. What happens to hidden supply chain risks? Think deforestation in South America, poor working conditions in textile factories, or unethical mining practices for EV batteries. If companies only assess Tier 1 suppliers (who tend to be well-behaved), will human rights abuses and environmental damage deeper in the supply chain go unnoticed?

3. EU Taxonomy – Who’s Actually ‘Green’?

The EU Taxonomy was introduced as a gold standard for sustainable investment, guiding businesses and investors toward truly eco-friendly activities. The Omnibus proposal makes key adjustments:

🔄 What’s changing?

• Only companies with €450 million+ in revenue will need to report taxonomy alignment.

• A 10% materiality threshold will be introduced, meaning companies only need to disclose sustainability metrics if they exceed this threshold.

• The proposal simplifies reporting templates to reduce administrative complexity.

  
  

For large corporates, this is a relief. For investors? It could mean less access to reliable ESG data, making it harder to verify whether a company is truly ‘green’ or just talking the talk.

🚨Streamlining or Deregulation? The Debate Heats Up

With the EU economy under pressure and businesses calling for relief from complex compliance rules, the Omnibus proposal is being framed as a pro-competitiveness move. But while some celebrate the flexibility it offers, others worry it’s a step in the wrong direction.

💡 What’s at stake?

✔️ For Businesses – Less paperwork, more focus on flexibility and growth.

✔️ For Investors – Harder to gain ESG data and compare ESG risks/opportunities across companies.

✔️ For Consumers – Increased risk of greenwashing and misleading sustainability claims.

✔️ For the Planet – Less stringent regulations could slow down sustainability progress.

🌍This shift echoes broader global trends—especially in the U.S., where certain ESG policies have faced political pushback. The EU has long been the global leader in sustainability regulation, but with the Omnibus proposal, are we seeing Europe step back from its climate leadership role?

JOIN THE CONVERSATION

How will investors and businesses adapt to reduced ESG disclosures? Share your thoughts in the comments!

I also recently listened to the " Building Inclusion Through Sustainable Leadership + The EU Omnibus Proposal" episode of the Regulatory Ramblings podcast. Highly recommend checking it out—Click here to listen.

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