Final Omnibus 1 Agreement: The EU surrenders climate ambition and seals U-turn on corporate sustainability rules

An agreement between the co-legislators was found on Monday night under the Danish Presidency. The deal needs to be rubber-stamped in the next few days in the EU Parliament, where the EPP has allied with far-right groups to negotiate and water down the EU sustainability and due diligence laws.

These are the same groups publicly aligning with Trump - while staying silent when U.S policies threaten the bloc’s interests.

Julia Otten of Frank Bold said:

“The final Omnibus agreement reflects short-sighted political decision-making, forced through with the far-right, at a time where the EU needs to stand firm and speed up the transition for its own strategic interests. By deleting the climate transition plan implementation, the EU is weakening the key legislative frameworks for businesses to prepare for climate risks and global challenges that can severely affect their operations and value chains. This is counter-productive for businesses, weakens accountability, and jeopardises the EU's own plans and objectives on climate and the industrial transition."

Whose interests are EU policymakers serving?

Sustainability has been dangerously reduced to an add-on by the EU lawmakers after coordinated efforts from foreign powers who saw the potential impacts of the laws at stake. The US administration fought against the laws, particularly the CSDDD, and major US companies, particularly from the oil and gas sector, mobilised other countries to join that opposition against the EU Green Deal Agenda and EU’s energy independence and clean tech leadership.

The US’ strategy document published this week clearly spells out their aim of “cultivating resistance to Europe’s current trajectory within European nations”. Few in the EU Commission spoke up against this overarching policy, such as Commissioner Ribera: “Europe can and must simplify rules where necessary, reduce unnecessary burdens and improve consistency. But giving up on transparency, reliability and diligence — or outsourcing core elements of our transition — is not simplification. It is self-harm." Instead, EU President von der Leyen (EPP) opened pandora’s box on this first Omnibus and allowed the climate change deniers and Trump-admirers of the far-right in the EU Parliament to team up with the EPP and re-write an essential part of the Green Deal.

The EU is now left with a sustainability framework that is reduced to the bare minimum, depriving the market of its effects at scale and reducing corporate accountability for major environmental and human rights impacts.

The consequences of far right and rushed policymaking

After more than a decade of progress, the EU Commission decided to skip all due process (see the EU Ombudswoman’s findings) and present changes with massive implications for businesses across the EU. The Council and the EU Parliament agreed last night to the following modifications:

EU Corporate Sustainability Due Diligence Directive:

• Climate transition plans: Any implementation duty is fully deleted from CSDDD. This move bows to far-right priorities to weaken EU climate policies. The provision was key to ensuring a level-playing field in the EU market and set the incentives to close the implementation gap between the targets reported and the actions taken by companies. However, companies in scope of CSRD still must publish information on their climate transition plans, or in its absence, on whether and when they intend to adopt one.

• Scope: They raise the scope to 5000 employees and a turnover threshold of EUR 1.5 billion. This leaves roughly 1600 companies across the EU in scope. The final agreement includes a review clause on this very limited scope.

• Identification of impacts: The final agreement reintroduces a full risk-based approach to the value chain that makes companies address impacts where they occur in the value chain. However, it adds stricter restrictions on information requests from all business partners outside of the scope.  

• Enforcement and liability: The agreement decreases the maximum limit of sanctions to 3% of the net worldwide turnover and removes the harmonised civil liability regime. It introduces a review clause on enforcement.  

EU Corporate Sustainability Reporting Directive:

• Scope: set for companies with over 1000 employees and 450 million EUR turnover. This means that 90% of companies are excluded from mandatory sustainability reporting. In 11 Member States, estimates show less than 40 companies will remain covered by the EU transparency rules. Most worryingly, across the entire EU, only between 20-40 companies in the agriculture, forestry and fishing sector, or the mining and quarrying industry will remain in scope based on current calculations. The review clause also includes possible need to extend the scope.

• Value chain cap: incorporates an explicit prohibition and additional burden for companies in scope regarding which information they can or cannot request to businesses in their value chains that fall outside the scope of the CSRD. The limits for permissible information requests is restricted to the content covered by the Voluntary SME standard (VSME), which was prepared originally for companies below 250 employees, and can suddenly be used (if chosen) by much larger and more complex companies. The final deal adds further complexity and obligations to companies if they ask for information that goes beyond the VSME.  

• Deletion of sector-specific standards: while acknowledging the need to develop guidance to help companies assess sustainability issues connected to their specific industry, no concrete mandate or timeline is provided to the EU Commission to develop such guidelines.

Moving forward: leaders will reap the benefits

What is the purpose of sustainability reporting: it helps companies identify impacts, risks and opportunities connected to their business model and supply chains. This process provides critical insights to business leaders to prepare their strategies, development and enhance long-term competitiveness in a low-carbon, resource-efficient economy. By providing structured, comparable, and relevant ESG data, companies can gain a competitive advantage over those lagging behind, and attract more investments (e.g. from pension funds, ESG focused products or indices) and improve their chances in public procurement procurement– as most national and EU funding schemes incorporate green or social requirements.  

What is the purpose of environmental and human rights due diligence: Due diligence is the basis for good reporting on risks and impacts. It gives companies the tool for effective risk management and engagement with suppliers to foster resilient and reliable relationships in global value chains. It also enhances accountability of companies and introduces complaint mechanisms at company level and public enforcement, including sanctions for non-compliance. It therefore sets a common standard for all companies active in the EU market and prevent foreign companies from China or the US to undercut those social and environmental standards.

By upholding and implementing sustainability reporting and due diligence, European businesses can still reduce risks connected with costly and volatile energy imports and position themselves as global leaders in strategic markets such as the clean tech sector.