The European Union's Omnibus Simplification Proposal, announced on February 26th, was designed to streamline EU sustainability regulations. However, the proposed changes raise critical questions about corporate sustainability reporting and compliance. What does this mean for businesses, and how should they approach sustainability disclosure moving forward?
Understanding the Omnibus Proposal
The Omnibus is a comprehensive legislative package aimed at harmonizing regulatory requirements across multiple sectors. While the proposal intends to simplify compliance, critics argue that it could weaken corporate accountability and reduce environmental oversight.
Key Changes in the Omnibus Proposal
- Higher Reporting Thresholds: The Corporate Sustainability Reporting Directive (CSRD) threshold increases to at least 1,000 employees, a balance sheet total of €25 million, or a net turnover of €50 million, potentially exempting 80% of companies.
- Extended Compliance Deadlines: The CSRD reporting deadline is postponed from 2026 to 2028, and the European Sustainability Reporting Standards (ESRS) will be revised to remove redundant reporting requirements.
- Reduced Corporate Due Diligence: The Corporate Sustainability Due Diligence Directive (CSDD) will be scaled back, extending the time between assessments from one year to five years to reduce compliance burdens.
Mandatory Sustainability Reporting Remains
Despite the Omnibus proposal, mandatory sustainability reporting remains in place for companies currently required to comply with the CSRD. Businesses operating in jurisdictions that have already implemented CSRD into national legislation will still face penalties for non-compliance. Since the Omnibus proposal has yet to pass and may take several months to be finalized, companies should not delay their sustainability reporting efforts.
Additionally, businesses must comply with other mandatory reporting frameworks, such as the International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards and various national sustainability regulations, including the California Climate Bills (CCDAA).
Global Sustainability Reporting Standards: IFRS, GRI, and National Regulations
IFRS Sustainability Disclosure Standards
The IFRS Sustainability Disclosure Standards (ISSB Standards) provide a globally recognized framework for sustainability reporting. Over 30 countries, including Australia, Japan, and Canada, have taken steps to integrate ISSB-aligned climate-related disclosure requirements into their corporate reporting frameworks. These regulations ensure transparency in climate-related financial risks and align with global sustainability best practices.
The Role of GRI in Global Sustainability Reporting
The Global Reporting Initiative (GRI) Standards remain a cornerstone of sustainability reporting for companies worldwide. Unlike ISSB and CSRD, which primarily focus on financial materiality, GRI takes a broader perspective by emphasizing environmental, social, and governance (ESG) impacts from a stakeholder-centric approach. Many organizations use GRI alongside CSRD or ISSB to provide a comprehensive sustainability narrative that meets both investor and public interest requirements. As companies navigate the evolving landscape, GRI adoption continues to be a critical component of global sustainability strategies.
California Climate Senate Bills (CCDAA) and Expanding U.S. Regulations
The California Climate Corporate Data Accountability Act (CCDAA) affects approximately 10,000 public and private companies in the U.S. Companies with at least $500 million in annual revenue must report their climate-related financial risks, while those earning $1 billion or more must disclose Scope 1, 2, and 3 emissions. Smaller companies may also be indirectly impacted through supply chain emissions reporting. Following California’s lead, New York and Colorado are considering similar state-level regulations, further complicating the U.S. sustainability reporting landscape.
4 Best Practices to Stay Compliance-Ready
1. Assess Your Current Situation
Evaluate whether your company falls within the scope of existing and upcoming sustainability regulations, including IFRS, CSRD, and national mandates. Determine any gaps in your current reporting processes and establish a plan to address them.
2. Conduct a Double Materiality Assessment (DMA)
A Double Materiality Assessment is required under CSRD and recommended by ISSB and GRI. This process helps organizations understand both financial risks and their broader impact on society and the environment, ensuring alignment with global best practices.
3. Stay Ahead of Regulatory Changes
Rather than viewing sustainability compliance as a checklist, companies should embed sustainability into their operations. Conducting regular DMAs will allow organizations to prioritize relevant sustainability initiatives and keep themselves in a good position to meet compliance requirements as they come into scope. Monitoring local and global regulations will enable businesses to remain compliant and proactively adapt to changing laws.
4. Align Internal Teams and Processes
Legal, compliance, finance, and sustainability teams should work together to ensure an integrated approach to sustainability reporting. Establishing cross-departmental collaboration will streamline compliance efforts and enhance reporting accuracy.
Looking Ahead: A Proactive Approach to Sustainability Reporting
While regulatory shifts like the Omnibus Proposal introduce uncertainty, companies must remain committed to sustainability reporting. Compliance is not just about avoiding penalties—it’s an opportunity to build trust and create business value. By proactively assessing regulatory requirements and integrating sustainability into corporate strategy, businesses can ensure long-term success in an increasingly sustainability-focused world.
