In a bid to enhance the competitiveness of European businesses, the European Commission has introduced the Omnibus package, a proposal aimed at simplifying sustainability reporting and due diligence regulations. However, the plan has sparked a heated debate, with critics warning that it could weaken existing sustainability standards.
The proposal follows mounting concerns over excessive regulation and underinvestment in the European Union, highlighted in a report by former Italian Prime Minister Mario Draghi. Commission President Ursula von der Leyen has endorsed efforts to streamline corporate regulations, focusing on key directives such as the Corporate Sustainability Reporting Directive (CSRD), Corporate Sustainability Due Diligence Directive (CSDDD), and EU Taxonomy Regulation.
However, opposition is growing. A coalition of 90 organizations led by WWF EU has criticized the move, fearing it may dilute sustainability reporting standards. Meanwhile, 240 economists and researchers argue that loosening regulations could undermine the EU’s long-term environmental goals. Even large corporations like Nestlé and Unilever, along with sustainability startups, have voiced concerns over the potential weakening of due diligence requirements.
Corporate Sustainability Reporting Directive (CSRD) Changes
The CSRD, introduced in 2023, currently mandates sustainability reporting for companies with over 250 employees. Under the new Omnibus proposal, this threshold would increase to 1,000 employees, with additional criteria of either €50 million in turnover or a €25 million balance sheet total.
For companies that remain subject to CSRD, reporting will become simplified, reducing required data points by nearly 70%. Businesses will also be exempt from reporting on activities that account for less than 10% of revenue, spending, or assets.
The changes could significantly impact sustainability startups like Greenly, a Paris-based climate tech firm specializing in carbon accounting. Greenly, which raised a $52 million Series B last year, sees CSRD-related services accounting for 20% of its business pipeline. CEO Alexis Normand predicts that half of those companies—about 10% of Greenly’s pipeline—may abandon sustainability reporting if it becomes non-mandatory.
The CSDDD, designed to enforce responsible corporate behavior in supply chains, currently applies to companies with 500+ employees and a net turnover of €150 million+ worldwide. Under the Omnibus proposal, the compliance deadline would be delayed by one year, and due diligence obligations would be limited to direct suppliers, excluding indirect partners.
The EU Taxonomy Regulation, which classifies environmentally sustainable activities, would also see changes. Companies with fewer than 1,000 employees would no longer be required to report, and businesses would be allowed partial alignment with the taxonomy instead of full compliance.
Industry Concerns Over Delayed Action
Sustainability advocates argue that these changes could hinder progress in reducing emissions. Greenly’s Normand warns, “What we’re seeing is a backlash from those resistant to change. Everyone knows the transition is happening too slowly.” He believes delaying the regulations by two years would be a missed opportunity.
Berlin-based carbon accounting startup Plan A, which does not rely solely on regulatory compliance to attract clients, remains unaffected. However, its founder Lubomila Jordanova notes that many sustainability startups will struggle. She recalls that in 2022, around 300 companies operated in the carbon accounting sector, but many have since gone bankrupt.
Beyond startups, the Omnibus proposal could also reduce investor confidence in sustainability metrics. Gordon Tveito-Duncan, CEO of GaiaLens, an AI-powered sustainability analytics platform, warns that loosening sustainability reporting rules could discourage investment in ESG initiatives.
“Tveito-Duncan notes that investors expected the CSRD to improve sustainability data transparency, but weakening these rules signals a loss of confidence in the sector.”
He also emphasizes the EU’s role as a global leader in sustainability regulation but believes that Donald Trump’s return to the U.S. political landscape has influenced the EU’s policy shift.
“Many in sustainable finance feel shocked at how quickly the EU has backtracked,” he says. “For decades, the EU embedded sustainability into its policies, but now, within a month of Trump’s resurgence, everything is under review.”
While the Omnibus package awaits a vote, businesses and investors are closely monitoring its potential impact. They are assessing whether the EU will uphold its leadership in sustainability regulation or scale back its ambitions in response to corporate pressure.
