Omnibus proposal: which rules and what changes?
The Omnibus proposal proposes changes to different sustainability rules, laid down in the Corporate Sustainability Reporting Directive (CSRD), Corporate Sustainability Due Diligence Directive (CS3D) and the EU Taxonomy. Even though these rules have only recently been adopted, the European Commission already wants to amend them in order to reduce administrative burdens. Whilst we would welcome streamlining efforts, we were highly concerned the proposal would end up lowering the standard for corporate accountability. In many ways, that is exactly what happened. Quite some changes have been made, but we focus on the three most concerning:
- Heavily reduced scope: around 80% of the companies are removed from the scope of the new CSRD. The original scope involved large companies with at least 250 employees, a balance sheet of more than €25 million or a net turnover exceeding €50 million. In this proposal, the rules will only apply to large companies with more than 1,000 employees.
- Smaller value chain responsibility: businesses were liable for damage done in their entire value chain in the CS3D. This has been amended, such that firms are just responsible for their direct contracting partners with only a limited obligation to investigate harm done by companies further up or down the value stream.
- No explicit civil liability: originally the CS3D prescribed that companies were liable when they failed to prevent or mitigate adverse impacts, resulting in social or environmental damage. Now this is left to national law, meaning it will differ per member state whether companies are liable and rules will be enforced.
The combination of this and other changes, such as the reduced obligation to terminate relationships with businesses in human rights violations, will heavily decrease the impact of these laws that are essential to regulate corporate behaviour and protect people and planet.
What that would mean for sustainable finance
In short: what was presented as a simplification effort is in fact a major deregulation exercise. This is harmful as there is an urgent need for accountability as businesses won’t change their damaging behaviour voluntarily. Even if they would want to: sustainability requires a level playing field such that firms that seek long-term sustainability are not out-priced by those who seek short-term profit at any cost.
Another reason why this is harmful is because the Commission signals an entirely wrong message and creates legal uncertainty. By taking away requirements, it punishes companies that have invested in preparing to comply with the rules. Ultimately this will only cost society more. Many companies that were ready to report and take action on social and environmental damage in their supply chains will no longer have to. Collectively, we have spoken out in favour of the sustainability framework.
What’s next?
There are still actions to take. This is the start of a longer process in which the European Parliament, member states and the Commission will negotiate about the texts (the so-called “co-decision procedure”). As Triodos Bank we will use our position to advocate for restoring the ambition in sustainability legislation. We will look for majorities in favour of corporate accountability and common decency.