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Europe’s Omnibus Poses Questions for CSDDD

The impact of the proposed regulation on supply chain scrutiny by investors depends on its implementation, says Alessandro De Nicola, Partner at BonelliErede.

In November 2024, the European Commission (EC) President announced the intention to approve a new Omnibus Regulation. The Omnibus, set to be introduced soon (February 2025), aims to simplify the existing EU corporate sustainability requirements. In particular, the new legislation will consolidate the EU Taxonomy Regulation (Reg. EU 2020/852), the Corporate Sustainability Reporting Directive (CSRD, Dir. EU 2022/2464) and the new Corporate Due Diligence Directive (CSDDD, Dir. EU 2024/1760).

The decision was taken after the report on ‘The Future of European Competitiveness’ (September 2024) by Mario Draghi, former President of the European Central Bank. The document shows that simplifying laws can increase the competitiveness of European companies. Therefore, the EC’s goal to reduce the stock of ESG rules is all in all good news for corporations. However, it is crucial for investors to understand the implications of this new regulation, in order to take informed decisions.

The impact of the Omnibus on CSDDD

One of the primary concerns is whether the Omnibus Regulation on ESG will dilute the most important European rules, the CSDDD.

The CSDDD has been a cornerstone in promoting corporate accountability and transparency. This recent directive is designed to ensure that companies identify, prevent, and mitigate adverse impacts on environment and human rights within their operations and supply chains. It mandates that companies conduct thorough due diligence to identify and address potential risks in their value chains.

Considering that the Omnibus Regulation aims to reduce bureaucratic burdens, probably the new legislation will not compromise the core objectives of the CSDDD. The EC has emphasised that the content of the existing legislation will remain intact, focusing on reducing redundant and overlapping data collection. However, by integrating the directive into the Omnibus Regulation, it is not excluded that some aspects of corporate due diligence may be regulated differently. For this reason, it is recommended to investors to closely monitor how the Omnibus Regulation will be implemented.

Good news for investors?

The Omnibus Regulation offers to investors the promise of greater consistency in ESG reporting.

Institutional investors seek clarity and assurance in regulatory frameworks to make informed investment decisions. The Omnibus Regulation aims to provide a more coherent and streamlined reporting process, which could enhance transparency and comparability across companies.

The regulation’s emphasis on reducing redundant reporting requirements could lead to more efficient data collection and analysis, providing investors with clearer insights into a company’s sustainability practices.

By consolidating multiple directives, the Omnibus Regulation could reduce the complexity and administrative burden, potentially increasing investor confidence. Obviously, the success of this initiative will depend on the implementation details.

Key indicators for investors

In the analysis of the Omnibus Regulation, investors should pay attention to several key indicators. These include:

  • the consistency and reliability of sustainability data;
  • the alignment of corporate practices with ESG goals;
  • the transparency of supply chain operations;
  • the accuracy and completeness of sustainability reports;
  • the extent to which companies disclose their supply chain practices;
  • the alignment of corporate strategies with ESG objectives;
  • how companies address potential risks and adverse impacts in their value chains;
  • the costs borne by the company to implement these rules, i.e. the efficiency of the implementation process;
  • the benefits for shareholders of the introduction of the rules.

By focusing on these indicators, investors can gain a clearer understanding of a company’s commitment to sustainability and its ability to manage ESG risks effectively.

Challenges in global value chains

Investors will also be interested to know whether new requirements on supply chain controls are being defined and whether companies are complying with them.

The increasing complexity and global nature of value chains pose significant challenges for companies in obtaining reliable information on business partners and their operations. Global value chains often involve multiple tiers of suppliers, each with its own set of practices and standards. This complexity makes it difficult for companies to obtain reliable information about their business partners. Furthermore, varying standards across regions can hinder effective due diligence.

For these reasons, companies must invest in robust data collection and verification processes to ensure the accuracy and reliability of their sustainability reports. This can be done, for example, with artificial intelligence and data analysis tools. Additionally, fostering strong relationships with suppliers and engaging in collaborative efforts can help improve the flow of information and ensure that sustainability standards are upheld throughout the value chain.

Stay tuned: legal advancements in 2025

In 2025, we can expect several legal advancements aimed at enhancing corporate accountability and sustainability. The implementation of the Omnibus Regulation will be a significant milestone, but other developments, such as those regarding the Forced Labour Ban (adopted by the EU Council on November 2024), the Ecodesign for Sustainable Products Regulation (ESPR, Re. EU 2024/1781), the Deforestation Regulation (EUDR, Reg. EU 2023/1115, the application of which has been postponed to 30 December 2025) and the Sustainable Finance Disclosure Regulation (SFDR, Reg. UE 2019/2088, now under review), will also play a crucial role.

All developments related to these EU acts will require companies to adopt more stringent sustainability practices and provide investors with more comprehensive and reliable ESG data.

The post Europe’s Omnibus Poses Questions for CSDDD appeared first on ESG Investor.

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