Debate Over EU’s 'Omnibus Regulation' Deepens as Europe’s Corporate Sustainability Ambitions Hang in the Balance

BRUSSELS, Aug. 27, 2025 — The aspect of corporate governance in Europe has taken a new dimension, with the focus panning from companies merely following norms laid down by the European Commission to now a huge debate evolving on adoption of EU’s “omnibus regulation,” which is said to dilute Corporate Sustainability Due Diligence Directive, or CSDDD.

European Commission’s proposal to simplify several corporate sustainability reporting requirements has evoked sharp reactions from law makers and environmental advocacy groups. Responding to the Commission’s “omnibus regulation”, Christine Lagarde, president of the European Central Bank last week warned members of the European Parliament against any extreme measures in their plans to trim corporate sustainability reporting requirements.

European Commission proposed an omnibus bill in February that would reduce the number of companies in scope for CSDDD, among other changes. The European Parliament and European Council legislated wants a delay in reporting for the next wave of Corporate Sustainability Reporting Directive, or CSRD reporting companies and the first wave of CSDDD reporting companies until 2028, while further changes to the laws are worked out. EU Member States agreed to significantly dilute the CSRD and the CSDDD in a significant move away from Europe’s corporate sustainability ambitions.

Who First Opposed Dilution of Corporate Sustainability Reporting? 

In January, Human Rights Watch joined 170 other human rights and environmental organizations and trade unions calling on the European Commission and its President Ursula von der Leyen to actively protect the European Union’s existing corporate accountability laws. The plea from the groups was made in response to President von der Leyen’s announcement on November 8, 2024, that in order to improve EU competitiveness, she would reduce reporting requirements for companies by 25 percent and introduce an “omnibus” proposal that could weaken the CSDDD and two other corporate sustainability reporting and classification laws adopted during her first mandate at the helm of the commission.  The CSDDD is the EU’s corporate accountability law requiring large corporations to conduct human rights and environmental due diligence in their global supply chains.

Notably, Lagarde wrote to European parliamentarians to note that plans to amend corporate sustainability reporting had significant implications for the ECB’s attempts to incorporate climate change considerations into its monetary policy framework for the Eurosystem. “Climate change has profound implications for price stability through its impact on the structure and cyclical dynamics of the economy and financial system,” she wrote. “To adequately consider the implications of climate change and nature degradation, the Eurosystem requires sufficient high-quality climate data.”

Aspects of Sustainability Reporting You Should Know

WWF’s Take on European Council: In a statement issued by the World Wildfile Fund, or WWF, European Council’s decision taken on June 23 is said to have dented the legislation that took years to cautiously design and negotiate. Instead of providing clarity, it brings to fore confusion and legal uncertainty across the EU’s sustainability rulebook, says the WWF statement.

In case the purview of both Directives shrinks, thousands of companies will fall outside of reporting and due diligence obligations. By only keeping companies with more than 5,000 employees and €1.5 billion in net turnover under the ambit of CSDDD, a significant number of very large firms will be left completely unchecked. In response to the Member States’ agreement, WWF says it clearly distorts the concept of risk-based due diligence, originally designed to address the most severe risks wherever they occur in the value chain, as it deliberately limits its application to direct suppliers (Tier 1).

In doing so, the agreement borrows the language of internationally recognised standards while discarding their core intent, it says.

Climate Transition Plans: WWF has highlighted that compromising with the corporate sustainability reporting would mean that the requirements for companies to adopt climate transition plans, one of the only provisions directly linking corporate behaviour to the EU’s climate goals will get derailed.

Not only are companies no longer required to implement them, but they also no longer need to demonstrate how their business models and strategies are compatible with the Paris Agreement, it says.

It is also widely believed by WWF that the Council’s decision negatively affects investors and businesses alike. By confirming the Commission’s proposal to introduce a value chain cap in the CSRD, the Council is placing legal limits on how far companies can go in collecting sustainability data from their business partners. In doing so, Member States are effectively denying investors access to sustainability data they need to assess risk and allocate capital, and are actively legislating against voluntary disclosure and sustainable business action.

Concession to US: In February, House Financial Services Chair French Hill, R-Ark said that the CSDDD should be treated as a “non-tariff barrier” for US companies, and in March a Senate bill was introduced to bar US companies from complying with the laws. In April, the official account of the U.S. Trade Representative slammed various pieces of EU legislation in a post on X, formerly Twitter, saying that CBAM “imposes costly verification measures and could reduce US exporters’ advantage in the EU market over high-emissions competitors, namely China,” and would “impact $4.7 billion worth of annual U.S. exports.”

EU Member States have agreed to significantly dilute CSRD and CSDDD in a significant move away from Europe’s corporate sustainability ambitions.

Inputs from Saqib Malik

Editing by David Ryder