EU Parliament’s Omnibus Battlelines Emerge
Investors urged to speak out to avoid “highly politicised and bitter divide” thwarting ten years of hard-fought progress.
Divisions within the European Parliament are becoming increasingly clear over the Commission’s (EC) proposed omnibus, with a decision needing to be made on whether to twist to the left or the right.
The omnibus, unveiled at the end of last month, looks to reduce the sustainability reporting burden for companies by modifying the Corporate Sustainability Due Diligence Directive (CSDDD), the Corporate Sustainability Reporting Directive (CSRD), and the EU’s taxonomy for sustainable activities.
The proposed changes have been submitted to the European Parliament and Council for their consideration and adoption, with the changes only ready to be implemented once the co-legislators have reached an agreement on the proposals.
The European Parliament comprises eight parties, which collectively hold 720 seats. The largest party is the centre-right European People’s Party (EPP), while the left-leaning Progressive Alliance of Socialists and Democrats (S&D) are the only other party with more than 100 (they have 136). This parliament is widely regarded as having a right-wing slant, with think tank the Centre for European Policy Studies finding that 24% of Members of European Parliament (MEPs) are more right-wing than the EPP.
“The Parliament is really divided on the omnibus, and the first debate on Monday has clearly shown this,” Andreas Rasche, Professor of Business in Society at the Copenhagen Business School Centre for Sustainability, told ESG Investor. “The EPP believes that more is needed, and that the proposal does not go far enough. However, it will be very difficult for the EPP to find a majority in the centre of the parliament without making concessions, because the S&D see the omnibus very critically.”
Divided Parliament perspectives
The EPP has indicated that they will push for further changes through the omnibus in upcoming negotiations.
“All the indications in what has been said publicly that the EPP would like to push the deregulatory direction further rather than simply accept or find compromises around the EC’s omnibus proposal,” said Richard Howitt, a strategic advisor on corporate responsibility and former Member of the European Parliament. “The final agreement could be more radical and more extreme in terms of deregulation than already what’s on the table.”
The right-wing European Conservatives and Reformists Group has also stated that the omnibus is insufficient, with one of its MEPs issuing a rallying cry to “cut, cut, cut, and once again cut” and to “throw a lot of directives into the trash, where they belong”.
Meanwhile, the S&D has indicated support for simplification in general, but many of its members have suggested that the omnibus reflects deregulation rather than simplification. The Greens have also indicated that the omnibus is a massive deregulation that undermines the green transition.
The centrist Renew party has reminded the EPP that it needs to either negotiate with the centre or form an alliance with the extreme right and has stressed that it is possible to move quickly on this without falling into excess deregulation or watering down rules.
“The EPP has two options: they either team up with the far-right parties, in which case they may need to roll back the directives even further; or they seek an alliance with centre parties – S&D, Greens, Renew – in which case it is likely that some of the proposed changes will be softened,” said Rasche. “The second option would be the more desirable one from a political perspective, but the first option is a reality as well, because the EPP voted with far-right parties when amending the EU Deforestation Law last year.”
Rasche said that both the council and the parliament are treating the delay of the CSRD and CSDDD as a priority item, with a vote on the stop-the-clock proposal scheduled for 1 April. The parliament is also expected to select a rapporteur for the proposal within the next few weeks.
Sebastien Godinot, Senior Economist at the WWF European Policy Office, said that investors have repeatedly called for regulatory stability and been clear that they welcome simplification through guidance, but not the reopening of the laws and deregulation, which “create confusion and delays which are counterproductive for EU investments”.
“Von der Leyen’s deregulation omnibus proposal has created huge confusion and introduced more inconsistencies and complexity on several issues,” he added.
“When it comes to politics, investors tend not to get involved and take the stance of letting the politicians sort out their arguments, seeing what the outcome is, and doing their best to address it,” said Howitt. “The consequences of the omnibus are so dramatic and so grave that investors can’t afford to sit back and wait.
“Investors may end up with a law that takes us back more than ten years and marks an abrupt turn on the shift to a sustainable financial system. This is going to leave huge data gaps in terms of what investors need and put much greater burden on them,” he added. “It’s important that investors make their voice heard now and put forward evidence to try and switch this from being a highly politicised and bitter divide at a very high political level with scant regard for the facts into a more rational debate.”
Council coordination
While the EU Parliament is divided over the omnibus, there is greater consensus in the Council, which brings together leaders from each of the EU’s 27 members to set its political agenda.
EU finance ministers broadly welcomed the proposal at an Economic and Financial Affairs Council (ECOFIN) meeting earlier this week. “Several countries even want to push it further and think that the proposal needs to be more ambitious,” said Rasche. “France, for instance, suggested to move the CSDDD threshold to 5,000 employees.”
However, there may be divisions on the omnibus at a country-level. Germany and France have both previously pushed for a reduction on sustainability disclosures, in line with the omnibus simplification. Conversely, Spain and Italy publicly spoken out against some aspects of the proposed omnibus reforms, while the Netherlands and Sweden had opposed broad rollbacks.
“To date, most countries have remained quiet or evasive, waiting for a concrete Commission’s proposal,” said Godinot. “Those going public before the EC omnibus was published – Denmark, France, Germany, Italy and Spain – already showed some splits.”
Howitt noted that while there is the potential for one or two countries to champion individual aspects of the directives, the broad direction of travel of the omnibus won’t be questioned by the Council from evidence seen thus far.
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