Omnibus: setback for sustainable finance rules, but damage control on transition plans
Photo credit: Guillaume Perigois / Unsplash+
Yesterday, the Legal Affairs (JURI) committee of the European Parliament adopted its position on the Omnibus simplification initiative, amending the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD).
These directives are core elements of the EU sustainable investment framework, based on the fundamental principle of double materiality. Together, they aim to inform investors’ decisions, support risk management and ultimately mobilise capital for the transition to a low-carbon economy. As highlighted in a joint investor and business statement co-signed by 480 organisations, these rules are essential for achieving the Clean Industrial Deal’s growth and competitiveness objectives.
Comparable and reliable corporate sustainability disclosures are key to finance the industrial decarbonisation. The European Sustainable Investment Forum (Eurosif) warns that the suggested 90% reduction in scope of CSRD and EU Taxonomy will weaken availability of this data. Concerns also remain on the value chain cap, which may prevent financial institutions from obtaining information they need for investment purposes. These proposals may hinder the contribution of investors to scaling-up finance for industrial decarbonisation and risks damaging the EU’s long-term competitiveness.
While we welcome that CSDDD retains an obligation to adopt climate transition plans, we question the rationale for deleting the requirement to implement these plans. Reinstating the risk-based approach for due diligence across companies’ supply chains is also an improvement over the European Commission’s proposals. However, the change in the CSDDD threshold will reduce the number of companies in scope by 70%, resulting in fewer than 1000 companies across the EU being required to apply these rules.
Aleksandra Palinska, Executive Director of Eurosif, commented: “Reducing the number of in-scope companies by over 90% for sustainability reporting and by 70% for rules on transition plans and due diligence is massive. Significant changes to sustainable finance rules will limit their ability to deliver on their objectives. Rolling back these rules now, just as they are beginning to deliver results, may seem like a simplification, but in practice, it creates legal uncertainty for investors and companies alike.”
Additionally, some key issues for investors were not addressed by the European Parliament, and we hope these will be tackled in the upcoming trilogue negotiations:
- Financial institutions remain concerned about whether the CSRD value chain cap would prevent information requests made to companies for investment purposes. The final Omnibus text should clearly exempt such requests from the value chain cap.
- For companies that are out of the CSRD scope but above 250 employees, using the VSME standards for voluntary reporting is not adapted and will lead to significant data gaps.
For these companies, Eurosif, jointly with other investor groups, supports the establishment of credible voluntary standards as a limited subset of the European Sustainability Reporting Standards (ESRS).
Pierre Garrault, Senior Policy Advisor at Eurosif, said: “Restricting the CSRD scope to around 3000 large companies, combined with an unclear value chain cap, will lead to significant data availability challenges for investors. Voluntary reporting based on stripped-down standards initially designed for SMEs will not bridge the resulting data gap. To support long-term growth of EU small and mid-caps, investors need credible voluntary standards adapted to these companies, and more clarity over the information that can be asked from them.”
Eurosif calls on the co-legislators to address these remaining challenges during the trilogue discussions to ensure the Omnibus initiative delivers meaningful simplification, while preserving the ability for investors to finance EU companies.
Consult Eurosif’s positions on the Omnibus here.
Access the joint statement of 480 businesses, investors and other organisations in support of EU sustainable finance rules here.
Eurosif – the European Sustainable Investment Forum, is the leading pan-European association promoting sustainable finance at the European level. Its membership is comprised of Sustainable Investment Fora (SIFs) from across Europe. Most of these SIFs have a broad and diverse membership themselves, including asset managers, institutional investors, index providers and ESG (Environmental, Social and Governance) research and analytics firms. Eurosif and its members are committed to the growth and development of sustainable finance and support development of EU rules which are fit-for-purpose and facilitate the financial industry’s contribution to a just transition.
A full list of Eurosif’s members can be found here and further information is available at: www.eurosif.org
