Political Appetites Pushing EU Omnibus Agenda
French and German retrenchment and lack of due process risk reduction in transparency to the detriment of investors.
EU member states and businesses are driving the direction of the looming omnibus package of sustainable finance reforms, with the desire to ‘streamline’ legislation overriding investor interests.
France’s government has called for an indefinite delay to a key piece of legislation, the Corporate Sustainability Due Diligence Directive (CSDDD). It has argued that the number of companies in scope should be reduced and certain due diligence requirements removed. Meanwhile, several German ministries have called on the EU to reduce sustainability reporting requirements.
Further detail on the omnibus proposal is not due to be revealed until 26 February, leaving question marks over what it will include and what simplification of legislation will look like.
“The omnibus has been politically willed into life, and it’s been done without any sort of due process in place, including impact assessments and consultation,” Richard Gardiner, EU Public Policy Lead at the World Benchmarking Alliance, told ESG Investor.
“The European Commission (EC) hasn’t offered a roadmap, shown the guardrails, or clearly defined the areas it was going to look at. They’ve essentially just repeated simplification, which means nothing. [The omnibus] is a political idea with little-to-no substance, and civil society and progressive business don’t want this.”
In November, EC President Ursula von der Leyen floated the idea of an omnibus package that would reduce the sustainability reporting burden for companies by modifying several pieces of EU legislation. The laws targeted by the omnibus are the EU’s taxonomy for sustainable activities, the Corporate Sustainability Reporting Directive (CSRD) and the CSDDD.
“Right now, we see political appetite and momentum for streamlining in general,” said Pierre Garrault, Senior Policy Adviser at Eurosif. “We hope that these efforts related to streamlining and consistency between regulations look at the technical aspects of where things can actually be improved. Wholesale changes and unravelling what we built during the last mandate would also be detrimental in a lot of ways, including for investors.”
There are major concerns that the omnibus could water down rules, potentially reducing transparency. This could undermine investors’ ability to scrutinise firms since they may not have access to the data they had expected to under the directives.
Gardiner warned that any move to dilute transparency would detrimentally impact investors.
All three pieces of legislation have already gone through a lengthy approval process and many EU member states having already started transposing the CRSD into their laws, while the CSDDD was only adopted last April.
“As an investor, I would be very concerned that we are losing credible data and the ability to evaluate companies based on some key decarbonisation elements,” said Julia Otten, Senior Policy Officer at law firm Frank Bold.
Investors, businesses, civil society organisations and human rights organisations have all published letters expressing concerns over the omnibus.
“There is a sizable group of businesses that want change, but they’re undercutting those that don’t to make it seem like all businesses are up for this,” said Gardiner. “You don’t see Dutch or Swedish businesses coming out for the omnibus, and the problem at the moment is that it’s so toxic and political.”
Political pressures
Last week, the EU’s ‘Competitiveness Compass’ was leaked, providing some indication on the direction of travel for the omnibus. The commission’s overarching message centred on a “far-reaching simplification in the fields of sustainable finance reporting, sustainability due diligence and taxonomy”. The compass is set to be officially published tomorrow.
However, Gardiner said that he doesn’t see any “grand plan and vision” for the omnibus in the compass, adding that “for any other law you would have a draft in place by now.”
Frank Bold’s Otten is concerned about some countries being so forthright about the approach they are taking.
Some member states might be pressured into revisiting these more nuanced views in light of the more radical proposals now being put on the table, says Otten.
French business lobby group AFEP and Deutsches Aktieninstitut, the trade body for Germany’s listed companies, have also issued a letter welcoming the omnibus and requesting CSDDD’s postponement and renegotiation.
The European Roundtable for Industry has called for the CSRD, CSDDD and Taxonomy to be watered down under the omnibus, and for other laws to be added to the proposal, while BusinessEurope has issued an “urgent” call to “comprehensively reduce the growing regulatory burden on companies operating in the EU”. The EU is reportedly considering either adding more laws to the omnibus, but at this stage what laws this could include remains unclear.
At last week’s Economic and Financial Affairs Council (ECOFIN) meeting, ministers at the meeting “strongly supported” the idea of reducing and simplifying reporting requirements for businesses to bolster the EU economy’s global competitiveness, and “looked forward” to the Commission’s planned proposal for an “omnibus simplification package”.
Europe’s sluggish economic growth has made competitiveness an increasing priority, while pan-European elections last June saw right-wing parties prosper at the expense of centrists and Greens. A report published by former European Central Bank President Mario Draghi in September built on this idea, pointing to the Taxonomy, CSDDD, CSRD as being harmful to EU competitiveness, with the latter branded a “major source of regulatory burden”.
“I fear that the omnibus will leave us with a radical and bold high level political agreement that will lead to complicated technical and legal solutions that the member states and industry will have to find afterwards,” said Otten. “This risks leaving a bigger mess than what they want to streamline or simplify right now.”
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