Possible Omnibus Simplification Package

We expect to see a material update or publication from the European Commission in late February 2025 on the potential simplification of sustainability reporting obligations under the EU Taxonomy Regulation, the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD).

While it’s not yet clear whether that will be a legislative proposal, or an indication of direction of travel on a proposal, an “Omnibus simplification package” is on the provisional list of items for discussion at the College of Commissioners on 26 February 2025.

The possibility of an omnibus simplification package was first signposted by European Commission President Ursula von der Leyen in remarks on 8 November 2024 at a press conference following the launch of the Budapest Declaration on the New European Competitiveness Deal.

While the 8 November 2024 announcement did not provide any more detail on the proposal, there were subsequent indications from the Commission that preparatory work had started, and that three options were under consideration: (1) postponing some obligations, (2) introducing some derogations based on company size, and (3) re-examining the substance of the reporting obligations by particular reference to the practical challenges that companies are experiencing in practice.

Our latest insights on CSRD and CSDDD are here:

Sustainability Reporting and Digitalisation

Sustainability reporting is also a focus for ESMA at the moment. It announced a consultation on how the European Single Electronic Format (ESEF) can be applied to sustainability reporting. This is part of ESMA’s mandate under Article 4(7) of the EU Transparency Directive to prepare ESEF draft regulatory standards (RTS).

The consultation covers (a) defining the marking up rules for sustainability reporting; with a phased implementation for ESRS sustainability statements in three steps, each lasting two years, and a full implementation for Article 8 disclosures; (b) redefining the marking up approach for the notes to the IFRS consolidated financial statements, and (c) proposes amendments to the RTS on the European Electronic Access Point.

The consultation closes on 31 March 2025, and ESMA plans to submit the final RTS to the Commission in Q3 2025.

SFDR – From Disclosures to Categorisation?

The Platform on Sustainable Finance (which advises the Commission on the EU Taxonomy and the wider sustainable finance framework) published a Briefing Note for the Commission this week, proposing a categorisation scheme as part of the review of the Sustainable Finance Disclosures Regulation (SFDR).

The Commission had conducted two 3-month consultations (a public consultation and a targeted consultation) on the SFDR on 14 September 2023 (read our insights here: Sustainable Finance Update: Commission consults on SFDR).

The targeted consultation included two sections which queried the usefulness of the existing disclosures framework and sought views on whether a voluntary categorisation system for financial products might work better. The Commission had noted that the “SFDR was designed as a disclosure regime, but is being used as a labelling system, suggesting that there might be a demand for establishing sustainability product categories.”

The Platform has now recommended a transition from the existing disclosures regime to a product categorisation system – there would be three distinct categories of products, and all products not falling into a distinct category would be termed as “unclassified”. The proposed categories would allow products to be differentiated based on whether they can largely be considered sustainable, whether they foster the transition to net zero, or whether they exclude sectors/companies based on ESG performance:

• Sustainable: Contribute through taxonomy‑aligned investments or sustainable investments with no significant harmful activities or assets based on a more concise definition consistent with the taxonomy.
• Transition: Investments or portfolios that support the transition to net zero and a sustainable economy, and avoid carbon lock‑ins.
• ESG Collection: Exclude significantly harmful investments / activities; invest in assets with better environmental and/or social criteria.

The Platform will hold a webinar on its proposal on Tuesday 21 January 2025. The Commission will now consider the Platform’s proposals.

From an SFDR perspective, the other key recent development has been ESMA’s Guidelines on funds’ names using ESG or sustainability-related terms which have applied to new funds since 21 November 2024 and will apply to funds existing before that date from 21 May 2025. Read the latest insights from our Asset Management and Investment Funds Group on those Guidelines here: ESMA Publishes Clarifications on its Fund Names Guidelines.

Please get in touch with your usual contact in the Arthur Cox ESG Group to discuss any of the above developments in more detail.