European Commission to overhaul EU ESG reporting regime?

Europe

Last month, the President of the European Commission - Ursula von der Leyen – announced that the Corporate Sustainability Reporting Directive (“CSRD”), Taxonomy Regulation (“Taxonomy”) and Corporate Sustainability Due Diligence Directive (“CS3D”) may be combined into one single “omnibus regulation”. This announcement follows the Budapest Declaration on the New European Competitiveness Deal (the “Budapest Declaration”), in which the Council of the EU expressed its desire for a “simplification revolution” and a “clear, simple and smart regulatory framework” in the EU.

Potential consolidation of the CSRD, Taxonomy and CS3D

Von der Leyen stated that the current ESG-related reporting regime “is good”, but that “the questions we are asking, the data points we are collecting — thousands of them — is too much. Often redundant, often overlapping”. Therefore, the European Commission wants to “reduce this bureaucratic burden without changing the correct content of the law that we all want”.

The Budapest Declaration calls on the European Commission to “make concrete proposals on reducing the reporting requirements by at least 25% in the first half of 2025”. Although the Budapest Declaration does not specify how it would like the European Commission to achieve this goal with regards to ESG-related reporting, von der Leyen’s announcement suggests that an omnibus regulation may be the European Commission’s preferred way to achieve such a reduction.

Is an overhaul necessary?

Companies may well welcome the prospect of an omnibus regulation, given that navigating the interrelated web of the CSRD, Taxonomy and CS3D can be challenging. If the omnibus regulation were to reduce the number of CSRD European Sustainability Reporting Standard datapoints and Taxonomy technical screening criteria, then life may well become simpler for in-scope companies.

However, although Commissioners, such as Valdis Dombrovskis – who will oversee efforts to improve productivity – have stated that the existing regime can be simplified without being watered down, there is a substantial risk that such a watering down takes place (and implementation delays inevitably ensue), as we have already seen with the past negotiations for the CS3D and more recently with the EU Deforestation Regulation.

What should companies do?

Whilst this announcement has created uncertainty and opened the door for a mass overhaul of the current EU ESG-related reporting regime, companies should continue as normal, ensuring compliance with the CSRD, Taxonomy and CS3D (where relevant), until we receive more information from the European Commission. Although it is unclear exactly when we can expect to receive more information, the European Commission’s “Possible items for the College of the Commissioner’s agenda 11 December 2024 – 5 March 2025” states that the omnibus regulation may be discussed in the European Commission meeting on 26 February 2025.

CMS lawyers will continue to monitor developments and are available to answer any queries.