Following calls to reduce the regulatory burden imposed on businesses, the European Union is poised to reform a series of laws passed under the EU Green Deal that required businesses to address climate change. With a goal of reducing reporting requirements, the Omnibus Simplification Package will look at the Corporate Sustainability Reporting Directive and the Corporate Sustainability Due Diligence Directive. Despite initial statements by the President of the Commission, a leaked draft of the proposal and the February 26 agenda indicate no changes will be made to the EU Taxonomy at this time.
As part of the European Green Deal, a series of directives were passed by the EU to force businesses to address climate change and report carbon emissions. The goal is to comply with the climate initiates of the Paris Agreement, an international treaty signed in 2015 to prevent climate change. The agreement included a goal of reducing greenhouse gas emissions to net zero by 2050. The EU addressed this through three key legislative actions.
In 2020, the EU adopted the EU Taxonomy for Sustainable Activities. The Taxonomy created a classification system for business and investors to know what activities are considered green or climate friendly.
Then followed the Corporate Sustainability Reporting Directive in 2023. The CSRD created requirements for businesses to report GHG emissions and other environmental, social, and governance actions. For large companies, general reporting begins in 2025 for fiscal year 2024. Small and medium sized companies, non-EU based companies, and companies in high emission sectors will see reporting requirements being drafted and released over the next year.
The final piece, the Corporate Sustainability Due Diligence Directive, was adopted in May 2024. The CSDDD, or CS3D, created additional reporting requirements, as well as legal liability, for companies in relation to their supply chain. The intent is to not only regulate the direct actions of a company, but also assure their suppliers comply with climate and human rights goals. However, the CSDDD faced significant push back during the final stages. Only finding approval after significant changes that reduced the scope.
Following an informal meeting of Council leadership in mid-November, Ursula von der Leyen, president of the European Commission, announced her intention to revamp sustainability regulations to reduce the burden on businesses. She stated the Council and Commission will have an omnibus bill that will take “a huge approach to reduce in one step, in all the different fields, what is agreed is too much today. We will look at the triangle Taxonomy, CSRD, CSDDD.”
A draft version of the Omnibus Simplification Package was leaked on February 22. The draft showed a drastic reduction in the number of businesses subject to sustainability reporting under the CSRD. If the draft proves to be accurate, the proposal will raise the standard to only include companies with over 1,000 employees and €450-plus million in annual net turnover. This aligns it with the existing standards of the CSDDD.
The CSDDD could also see drastic changes, with a decrease in the frequency due diligence reporting, a limitation on pecuniary penalties, and a severe limitation on civil legal actions.
The EU Taxonomy was not addressed. However, the draft version was only a partial draft. An initial review could lead people, including myself, to believe that the unleaked portions might amend the Taxonomy. However, a closer look shows the text is complete enough to deduct that the Taxonomy is not in the proposal. Notably, there is no reference to the directive adopting the EU Taxonomy. This suspicion is reinforced when looking at the February 26 agenda of the Commission.
Item 11 of the agenda states, “Proposal for a Directive of the European Parliament and of the Council amending Directives (EU) 2022/2464 and (EU) 2024/1760 as regards the dates from which Member States are to apply certain corporate sustainability reporting and due diligence requirements.”
Item 12 of the agenda states, “Proposal for a Directive of the European Parliament and of the Council amending Directives 2006/43/EC, 2013/34/EU, (EU) 2022/2464 and (EU) 2024/1760 as regards certain corporate sustainability reporting and due diligence requirements.”
Notably absent is any reference to 2020/852/EU. While this is not definitive proof the EU Taxonomy will not be changed, many have questioned what changes needed to be made to the directive to reduce the burden on SMEs. The changes in the CSRD and the CSDDD appear to meet the goals of simplification.
We will know for certain on February 26 whether the EU Taxonomy is amended through the Omnibus Simplification Package. However, for now, all signs indicate the Taxonomy will be unchanged.
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