Suggestions that EU legislation may be watered down in upcoming Omnibus package
So much for double materiality. Rumors have been swirling around ESG-focused news outlets that the European Commission is expected to ‘heavily water down’ the requirements of its landmark CSRD and Corporate Sustainability Due Diligence Directive (CSDDD) legislations in its upcoming Omnibus package.
Reported changes to CSRD could include making companies with less than 1,000 employees exempt from having to report under the regulation, estimated to mean that around 85 percent of firms covered by the directive would no longer be in scope. Other aspects at risk include the need for double materiality accounting, which may be rowed back in favor of single materiality reporting.
The Commission has refused to comment on the rumors, with the scheduled publication of the Omnibus set for February 26. But while some IROs may breathe a sigh of relief at the news – and the prospect of not having to conduct a double materiality assessment – it may not lead to good outcomes for investors.
Stakeholders across the board – and outside of Europe – have been waiting for CSRD to improve the depth of data available on how companies are dealing with ESG and other sustainability challenges, as well as opportunities.
The first trickle of CSRD reports have started to be published in the first quarter of the year — and many of those larger companies are unlikely to row back any augmentations to their reporting processes.
But with the prospect of requirements being watered down, there would be a corresponding break in the data infrastructure created around CSRD that investors may come to expect.
And, if double materiality reporting requirements were scrapped, many investors would question the use of CSRD should companies only be forced to report on a single materiality foundation, which many do already on a voluntary basis.
Earlier this month, a group of 160 investors – all members of the Institutional Investors Group on Climate Change (IIGCC), the European Sustainable Investment Forum (Eurosif), and the Principles for Responsible Investment (PRI) – who manage some €6.6 trn ($6.9 trn) in assets called on the Commission to maintain the framework as currently proposed.
They wrote that the EU Taxonomy, the CSRD and CDDD are the ‘fundamental cornerstones’ of the EU’s sustainability policy, helping investors to manage risks, identify market opportunities and direct capital toward a net-zero economy.
‘We must not lose sight of the outcomes these regulations are set to support: accelerating investment towards a more competitive and sustainable economy and enabling investors and other market participants to better manage the risks, impacts and opportunities by facilitating access to high-quality, comparable and reliable sustainability data,’ they added.
Whether European lawmakers are reacting to a business environment outside of the continent that is becoming more hostile to pro-ESG policies that can be attacked politically is unsure, but it is clear that there is increasingly a chasm between what the investment community would like to see — and what business lobbyists say they would like to see.
Whatever happens, it’s clear that listed companies will need clarity as soon as possible. Research conducted last year by PwC found that 97 percent of businesses felt confident in being ready to report under the CSRD for the 2025 financial year and 93 percent for the 2026 financial year. If plans for double materiality reporting need to be aborted, most corporate reporting teams – many time-pressed and overworked as it is – would appreciate a heads up.
What do you think about the rumored changes to CSRD? Do you think there’s anything positive about the developments? Let us know, either via email at [email protected], or on Linkedin.
