Omnibus Data Dearth Threatens EU Competitiveness
Reduced CSRD scope risks making high quality, comparable and reliable sustainability data harder to access and damaging investor confidence.
The European Commission’s (EC) pursuit of increased competitiveness by simplifying its sustainable finance rules through a proposed omnibus package poses a threat to the availability of ESG-related data to investors.
The EC has stated that cutting red tape and simplifying rules will “regain competitiveness and unleash growth”, also predicting its omnibus scheme will “foster a favourable business environment and ensure that companies can thrive”.
But sustainable finance experts fear that things may work in the opposite direction.
“Taking it back to the first principle of why we are doing this in the first place, the word that we heard repeatedly was competitiveness, and these proposals can’t be viewed through any other lens than whether this enhances competitiveness,” Tom Willman, Regulatory Lead at sustainability technology provider Clarity AI, told ESG Investor. “The omnibus risks making high quality, comparable and reliable sustainability data harder to access and is not going to improve the competitiveness of the EU.”
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.
Investors and other stakeholders have long been expecting CSRD to significantly improve data on corporates’ ESG and sustainability performance. CSDDD will also require companies to collect data from organisations within their supply chains, which could be shared with investors in future.
However, some have suggested that the omnibus risks drastically reducing the reliability and the availability of sustainability data. The omnibus proposes to remove approximately 80% of companies from the scope of CSRD and mandatory reporting, roughly aligning with the reporting requirements of CSDDD.
“This simplification may cut some reporting costs, but it certainly wouldn’t help investors that wish to invest their money in companies that are doing either contributing to sustainability objectives or mitigating sustainability risk,” said Willman. “Investors are going to have less confidence in knowing that their money is going towards something that’s what it says in the tin.”
Investor data demands
Approximately 11,700 large companies across EU member states already subject to the Non-Financial Reporting Directive (NFRD) are expected to publish their first CSRD reports early this year, with many having started doing so from last month. CSRD was due to see this number increase to almost 50,000.
The omnibus’ proposed change in scope means that reporting would only be mandatory for companies with more than 1,000 employees and either a turnover of more than €50 million (US$52 billion) or a balance sheet surpassing €25 million.
“The omnibus proposal threatens to reduce the amount and quality of data quite substantially,” said Willman. “There are three pillars to that. There would be a huge reduction in the number of companies that will be required to report, there will potentially be a further reduction in terms of what will be reported, and there could be a lower standard of assurance of that data once it’s been reported.
“If you take those three factors together, then you end up with a system with a lot less data being reported by far fewer companies. Such data will also potentially be of significantly lower quality,” he added.
Anne Schoemaker, Senior Director of Product at Morningstar Sustainalytics, the data, analytics and indexes provider’s ESG research unit, acknowledged that more data is not necessarily better, and does not necessarily mean that the additional information leads to better decision-making.
However, she warned that the current proposal risks severely limiting options for improving data quality. “More reported data, and robust and standardised reporting requirements could have improved the availability of data, models and assessments,” she said.
In Morningstar’s Voice of the Asset Owner Survey 2024, asset owners underscored the need for ESG data, with 43% pointing to this as being most useful for their investment strategies, ahead of ESG ratings (24%) and indexes (23%). It also found that 67% of asset owners globally believe that ESG has become more material to their investment process in the last five years.
Responding to a survey carried out by reporting compliance platform Workiva’s 2025 Executive Benchmark on Integrated Reporting, 96% of 222 institutional investors agreed that integrated reporting enables better decision-making leading to improved financial performance by companies, up from 91% in last year’s benchmark study.
The 2024 edition of the benchmark found that 88% of institutional investors were more likely to invest in companies that integrate financial and ESG data and obtain assurance of ESG data.
“There is a risk that the omnibus’ cuts could be so significant that there is less available comparable, reliable and assured data,” said Schoemaker. “There’s a broad acknowledgement that data is needed to scale up investments to support green goals and decarbonisation.”
Investors demand for ESG- and sustainability-related data has also been showcased in the creating of the climate-focused Net Zero Data Public Utility, and the Nature Data Public Facility, its nature-focused equivalent.
A statement signed by 362 civil society organisations issued this week warned that the EC’s CSRD proposal will significantly reduce the availability and reliability of sustainability data. It also expressed “concern” over the EC’s proposal to limit the data requests by very large companies towards their large to mid-sized suppliers.
As part of the omnibus, the EC stated that it will adopt a voluntary standard for all companies out of scope, including SMEs, based on the Voluntary Sustainability Reporting Standard for non-listed Small and Medium-sized Enterprises (VSME) developed by the European Financial Reporting Advisory Group.
The VSME is expected to standardise multiple ESG data requests, representing a significant cost of preparation for non-listed SMEs, by reducing the number of uncoordinated requests received.
“It’s fair to say that voluntary reporting is not going to completely fill the gap that will be left by the reduction in scope of CSRD,” said Willman.
The post Omnibus Data Dearth Threatens EU Competitiveness appeared first on ESG Investor.