On January 29, the European Commission released its Competitiveness Compass, outlining a series of measures to promote investment and innovation and increase competitiveness in the EU. While the Competitiveness Compass spans a number of initiatives, the one garnering the most attention in our circles is an “unprecedented simplification effort” intended to streamline the EU’s sustainability reporting regulations and requirements.
The first omnibus proposal, which is expected to be released February 26, will detail exactly which aspects of the the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), and the taxonomy regulation will be subject to change.
France and Germany’s Calls for Regulatory Relief
On January 20, France requested an indefinite delay for CSDDD and a two-year postponement for CSRD. The French government also proposed a significant rollback in reporting requirements, focusing disclosures primarily on climate objectives. Additionally, the proposed revision to CSDDD’s company size threshold, from 500 employees to 5,000 employees and a revenue floor of €1.5 billion, would exempt nearly 80% of companies from its scope.
Similarly, Germany’s December 17, 2024, letter urged a reduction in “overly extensive” reporting obligations, emphasizing the “only-once principle,” which seeks to minimize duplicate reporting. Germany also advocated for aligning CSRD thresholds with those of CSDDD, raising the reporting eligibility criteria for businesses. Both countries’ letters highlight concerns over the administrative burden and competitiveness of European businesses.
Despite these efforts from two of Europe’s leading economies, not all feel this way. A coalition of major companies, including Unilever, Mars, Nestlé, and DP World, has stressed the importance of regulatory stability. These firms have urged the Commission not to reopen previously agreed regulations, emphasizing the need for predictability in sustainability reporting.
Omnibus Insights
The EU’s Competitiveness Compass suggests the Omnibus proposal will focus on aligning data requirements with investor needs, ensuring proportionality, and streamlining potentially redundant data points. Additionally, the Competitiveness Compass explores broader EU economic policies, including industrial competitiveness, innovation, and sustainability initiatives. The report serves as a strategic framework for balancing business growth with environmental and social responsibilities. The European Commission is expected to use these insights to inform regulatory updates and policymaking over the coming months.
Why Businesses Should Stay the Course
Despite potential changes ahead, delaying CSRD compliance presents risks. The final Omnibus package will unfold over multiple reports, with the first proposition set for February 26, 2025. Given the EU’s legislative process, any significant changes could take months or longer to finalize. In the meantime, existing legal obligations remain in effect.
Key considerations:
- Large companies are unlikely to see major changes. The most substantial reporting adjustments will likely impact smaller and mid-cap firms.
- Data collection requirements will persist. The proposal will focus on eliminating redundant data points and overlapping obligations; however,this does not mean that requirements will disappear altogether.
- Double materiality remains central. The requirement for companies to assess and report on both financial and impact materiality is expected to stay in place. Delaying assessments now could create a compressed timeline later.
Strategic Recommendations for Companies
1. Continue to prepare
Regulatory simplifications may reduce certain requirements, but core sustainability disclosures will remain. Companies should stay committed to their CSRD reporting plans to ensure readiness. Even the proposed 25% reduction in data points will not mean a seismic shift for many. Small and medium-sized enterprises can expect up to a 35% reduction in requirements, but larger companies may not experience the same amount of changes.
2. Don’t expect wholesale change
Even though the Omnibus proposal will bring changes to CSRD, CSDDD, and EU Taxonomy reporting, we can also expect such changes over the course of several issued reports. We can also expect that all three regulations obligations will remain separate, not condensed into a single regulation. Most importantly, the substance of these regulations will not change.
3. Proactively adapt to regulatory changes
The Omnibus initiative aims to refine, not eliminate, sustainability reporting. Companies that remain engaged with the evolving framework and adapt early will be best positioned for long-term compliance.
Staying Prepared for Regulatory Changes
Despite the push for reduced reporting requirements, the broader EU framework remains committed to advancing sustainability transparency. Companies should view this period as an opportunity to prepare and refine their compliance strategies. At Novata, we continue to keep a close eye on the evolving regulatory landscape in the EU and globally to help the private markets navigate the uncertainties. If you’d like to speak with an expert about how Novata can support you in your sustainability compliance efforts, reach out to us.