- Omnibus Proposals are not yet adopted
The Omnibus Proposals comprise two proposed directives: Omnibus Directive I, which proposes substantive changes to CSRD and CSDDD; and Omnibus Directive II, which addresses timelines.
While Omnibus Directive II’s proposals to delay CSDDD and CSRD implementation have been approved by the European Parliament and are anticipated to be approved by the Council of the EU in due course, for now, the Omnibus Directive I proposals remain just proposals. Despite calls for urgency, with the European Council calling for the finalisation of Omnibus Directive I as soon as possible in 2025, delays are likely given the clear divisions in opinion on the changes to CSDDD and CSRD. As such, until Omnibus Directive I becomes law, companies remain bound by existing obligations.
- Obligations may not change significantly for large companies
The Omnibus Proposals include changes to application thresholds, timing for compliance, and scope of the obligations, but the impact on large global companies may be limited:
- Application thresholds under CSRD: The Omnibus Proposals raise the threshold for companies falling within the scope of CSRD to those with over 1,000 employees and either €50m net turnover or a €25m balance sheet. For companies already over this threshold, there is no change. Critically, this does not completely exclude smaller companies from its remit as large companies will still be required to request sustainability information from the small and medium-sized companies in their value chain.
- Due diligence scope under CSDDD: Currently under CSDDD companies must assess human rights and environmental impacts across their entire supply chain. The Omnibus Proposals focus due diligence on a company’s own operations, subsidiaries, and direct business partners. However, indirect partners still need to be assessed if “plausible information” from complaints, credible reports, or knowledge of issues in specific regions suggests potential adverse impacts. With almost every industry facing environmental and human rights concerns, particularly in distant supply chains, due diligence of indirect business partners will still be critical in all but limited circumstances for global large companies.
- Value chain cap under CSRD: CSRD limits the scope of information that companies with fewer than 1,000 employees would need to provide to those with reporting requirements in their value chain (known as the “value chain cap”). However, smaller companies must still provide information commonly shared within their sector, and any additional information set out in the upcoming Voluntary Use Standards.
- Timing: Omnibus Directive II delays CSRD and CSDDD implementation for some companies, but many still face the original timeline. Even with delays, investor, stakeholder and consumer expectations, and reputational risks tied to ESG, remain. Rather than a justification for inaction, companies should use the additional time to strengthen compliance programmes.
- Other reasons why companies need strong ESG compliance programmes
Notwithstanding the legislative future of the Omnibus Proposals – there are many other reasons why companies operating in the EU and the UK are still on the hook for ESG and should not ease up on their investment in ESG compliance programmes.
- Other EU and national ESG laws: The Omnibus Proposals do not override other EU laws, such as the Deforestation or Forced Labour Regulations; or national laws like Germany’s Supply Chain Act and France’s Duty of Vigilance Law, which also require companies to address human rights and environmental issues in their supply chains.
- Litigation and reputational damage: Though the Omnibus Proposals would remove the requirement for an EU-wide civil liability regime, leaving national laws to define civil liability, In practice, many courts, including the UK, are already willing to engage in ESG-related cases, and companies face growing litigation risks anyway.
- Risk of debarment: Under the UK Procurement Act 2023, effective from February, companies with weak ESG measures could be added to a public debarment list, barring them from public procurement tenders.
- Risk of false statements: Companies not cognisant of their supply chain’s adverse impacts run the risk of misrepresenting their products or services and the threat of criminal liability. For example, under the UK’s new “failure to prevent fraud” offense, companies operating in the UK may be liable for misleading sustainability statements made by employees or subsidiaries.
Conclusion
The Omnibus Proposals signal the EU’s intent to focus ESG obligations on large companies. While the changes suggest a shift towards deregulation, large global companies may still face the original legislation’s more onerous obligations. Regardless, the EU’s legislation is only the tip of the iceberg and failure to implement ESG programs could also result in other significant commercial and legal ramifications.