Investors’ Worst Omnibus CSDDD Fears Realised
Watering down of the EU’s flagship sustainability due diligence law “strip it of any meaning”.
The European Commission’s (EC) much publicised omnibus has confirmed sustainability investor’s worst anxieties, significantly scaling back the long-awaited Corporate Sustainability Due Diligence Directive (CSDDD).
The EC’s omnibus package, published this week, presents an imminent threat to the bloc’s sustainability rules. It looks to reduce the sustainability reporting burden for companies by modifying the CSDDD, the Corporate Sustainability Reporting Directive (CSRD), and the EU’s taxonomy for sustainable activities.
While the taxonomy has emerged largely unscathed, the CSDDD and CSRD have been severely watered down in the eyes or many, to the consternation and condemnation of investors, businesses, lawyers and civil society organisations. The final omnibus text on changes to CSDDD saw minimal alterations to widely shared leaks that emerged over the weekend.
The EC stated that the omnibus looks to “further increase the harmonisation of due diligence requirements to ensure a level playing field across the EU”.
Both Richard Gardiner, EU Public Policy Lead at the World Benchmarking Alliance, and Heather Grabbe, Senior Fellow at think-tank Bruegel, highlighted this could well mean member states cannot introduce due diligence rules that are more ambitious than the now weakened CSDDD due to concerns around fragmentation.
“CSDDD was always meant to be a floor, but in the omnibus proposes to make it a ceiling,” Gardiner told ESG Investor. “To lower the law and cap how companies can go on due diligence is a double punch, and that’s what led us to believe in our negative reading of the proposal.
“There’s a real risk that companies collectively hide behind this lower scope of CSDDD, because they would be compliant,” said Gardiner. “This would also hinder investors’ power is to drive further reporting because they would be hitting a ceiling.”
Speaking at a media briefing, Grabbe said that the omnibus goes “far beyond simplification, which would make reporting easier, and rather moves away from the transparency that investors have been asking for”.
“Even if member states want to impose stricter due diligence rules, making CSDDD into a ceiling prevents them from doing so,” she added. “It’s a way of keeping the playing field even, but it does that by requesting less rather than more.”
Investor impacts
The objective of the CSDDD is to enhance environmental and human rights protections in the EU and globally. It is still set to apply to large companies, designated as entities with more than 500 employees and a net worldwide turnover of €150 million (US$157.2 million). The directive took five years of negotiation before its approval last June.
The main changes include simplifying due diligence requirements, “reducing burdens” for SMEs and small mid-caps by limiting the amount of information that may be requested from them as part of value chain mapping, and removing the EU civil liability conditions.
Tessa Younger, Better Environment Lead at CCLA Investment Management, additionally highlighted that the altered CSDDD won’t require companies to align their lobbying with disclosed transition plans, warning that by weakening the directive there may be “less impetus for companies to act when they find misalignments between their positions and those of their trade associations”.
“Investors should be very alarmed,” said Gardiner. “There’s a lot of consternation on the CSDDD, because the proposals rip it apart, strip it of any meaning, and reduce its impact to the bare minimum.
“They’re going to have less leverage to push companies to do better on their human rights and environmental risks through CSDDD, and with the CSRD scope being reduced by 85% they’re going to have 85% less information than they were expecting,” he added. “Their ability to drive company change will be completely reduced by this.”
Slowing CSDDD, accelerating omnibus
The CSDDD was due to apply from mid-2027, but the omnibus has postponed the application of the sustainability due diligence requirements for the largest companies by a year to 26 July 2028 to give companies more time to prepare to comply with the new requirements and has advanced the adoption of the guidelines by one year to July 2026.
Gardiner said that the Directorate-General for Justice and Consumers, the EC’s body responsible for steering the CSDDD’s development, had planned to launch a consultation in October, the first step in gleaning industry feedback for the CSDDD.
This would have run for roughly three months, and would have seen industry run webinars and other public events on the directive, before the department collated the information into draft guidance. Gardiner said a public consultation on the draft guidance would have started sometime in late Q1 or in Q2 this year.
The guidance would have been on track to be ready in early 2026, which would have given companies, supervisors and civil society a year-and-a-half to implement the guidance and prepare for CSDDD compliance.
“For the Commision to take CSDDD and reduce it down with no discussion, no public information, no proper involvement from co-legislators and even some of those in the commission, essentially using an executive power model, is completely contrary to how the EU takes decisions,” said Gardiner.
“The credibility of the whole decision-making process has been challenged,” he added. “If the intention was, and I think it is, to kill the CSDDD, getting something terrible out there and with very little ground for compromise is the way to do it.”
The EC legislative omnibus proposals will now be submitted to the European Parliament and the Council for their consideration and adoption, with the commission urging the co-legislators to “treat this omnibus package with priority.”
Gardiner said that while process wise, the EC is trying to “ram the omnibus through”, he suggested that the omnibus is “too significant to fast track”.
“If they start amending this text in Parliament, and I can’t see situation where they don’t, then this could rumble on for ages,” he warned.
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