A brief investor-focused update on EU sustainability rules - what changed in the Omnibus, where SFDR 2.0 is heading, and what it could mean for product classification and disclosures.
Photo credit: DPAM
Ophelie Mortier
Omnibus – what's happening?
The Omnibus I regulation has now passed all the main steps needed to become law. The Council gave its final approval on 24 February, following Parliament's agreement in December. Once it's published in the Official Journal, it will come into force 20 days later. After that, countries will have 12 months to transpose the rules into domestic legislation, with a special deadline for Article 4 set for 26 July 2028.
For investors, the main thing to watch in the near term is how different countries decide to apply these rules. There's a risk that some countries might add extra requirements ('gold-plating'), which could cause differences across the EU.
Key changes – in simple terms
- Corporate Sustainability Reporting Directive (CSRD): These rules now only apply to companies with more than 1,000 employees and over EUR 450 million in annual turnover. For companies based outside the EU, the parent company must have a turnover above EUR 450 million in the EU, and subsidiaries/branches must have turnover above EUR 200 million. There's a temporary exemption for companies no longer covered by the rules for the financial years 2025 – 2026.
- Corporate Sustainability Due Diligence Directive: The scope is now limited to companies with more than 5,000 employees and over EUR 1.5 billion in turnover. Companies have more flexibility in how they prioritise due diligence and what information they use. Penalties are capped at 3% of worldwide turnover. The requirement for a climate transition plan and standardised EU liability rules have been removed. The deadline for countries to transpose these rules into law is now 26 July 2028.
- EU Taxonomy: Mandatory reporting now matches the updated CSRD rules (so, more than 1,000 employees and over EUR 450 million turnover).
One important detail: companies with more than 1,000 employees but turnover of EUR 450 million or less can choose to do limited Taxonomy reporting (they must report on turnover and capital spending, with operating expenses optional). This makes things easier for those companies, but it could mean investors have less information and less ability to compare sustainability data across companies.
SFDR 2.0: where things stand
Attention now shifts to SFDR 2.0. Many firms are waiting for clearer Level 1 definitions before re-mapping products, to avoid repeated reclassification and disclosure changes.
Next milestone: at the Council Working Party on 17 April, Member States are expected to discuss Level 1 concepts such as 'credible', 'science based targets' and 'engagement'.
European Parliament
- A draft report is expected around April/May, with Committee and Plenary votes tentatively in the second half of the year (timing may track Council progress).
- The main open issues include scope/thresholds and the criteria that would define each product category.
Council
Several Member States are pushing to lock in more clarity at Level 1 rather than deferring core concepts to Level 2 - an understandable reaction to the SFDR 1.0 experience, where implementation details drove most of the complexity and risk.
Key points remaining open
- Exclusions and Principal Adverse Impacts (PAI): the debate involves whether to use only the current Paris Aligned Benchmark/Climate Transition Benchmark exclusions and to what extent PAI should be retained, either fully or partially.
- Sovereign debt: there are suggestions to classify sovereign debt as ‘neutral’ when calculating thresholds.
- Product categories: ongoing discussions are focused on the specific definition and criteria for each product categoryTransition category: Most delegations want clear definitions at Level 1, especially for terms like ‘credible’ ‘science-based targets’ and ‘engagement’ One country wants engagement to be a required criterion for transition funds.ESG Basics category: This category is generally supported, but there are concerns about greenwashing and unclear criteria like ‘proven positive track record’. Some delegations also question the category's nameSustainable category: The proposed approaches found support. Member States agreed not to introduce a new overarching definition of sustainability but called for more clarity on ‘comparable assets’ and flagged risks of excessive flexibility.
- Transition category: Most delegations want clear definitions at Level 1, especially for terms like ‘credible’ ‘science-based targets’ and ‘engagement’ One country wants engagement to be a required criterion for transition funds.
- ESG Basics category: This category is generally supported, but there are concerns about greenwashing and unclear criteria like ‘proven positive track record’. Some delegations also question the category's name
- Sustainable category: The proposed approaches found support. Member States agreed not to introduce a new overarching definition of sustainability but called for more clarity on ‘comparable assets’ and flagged risks of excessive flexibility.
Conclusions
In light of the unpredictable and shifting regulatory landscape, it is essential to stay focused on our objectives and persevere on this lengthy journey, without rigidly clinging to outdated practices, as ESG continues to develop and adapt.
Still, abandoning ESG entirely would be unwise. Integrating ESG principles complements both resilience and sovereignty. Achieving digital, economic and energy sovereignty requires progress on decarbonisation and related fronts.
Regulations may retreat, but the momentum behind these changes is already underway and will persist.
We should maintain robust fundamental analysis and offer clear, transparent disclosures that extend beyond regulatory requirements.
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DPAM - Degroof Petercam Asset Management
DPAM - Degroof Petercam Asset Management
