The EU’s 2025 Stance on ESG & Sustainability: “Yes. But …”
Written By
Counsel
Belgium
As Counsel in our International HR Services group in Brussels, I have in-depth experience in employment and civil law litigation, with a practice that spans an array of employment and social security law matters, focusing on dismissals, compensation and benefits and workplace health and safety hazards.
At the Budapest meeting of November 2024, EU Commission President Ursula von der Leyen announced the publication of an omnibus’ regulation, i.e. a single set of rules on existing and currently often overlapping corporate sustainability reporting requirements. By streamlining these obligations, the Commission seeks to alleviate red tape and other regulatory burdens on companies, thus enabling them to focus on innovation and development rather than being swamped by compliance duties. In other words, although the President reiterated the Union’s unwavering support for sustainability standards, the overarching message is now that achieving these goals should not impede the Union’s economic prosperity, nor weaken its competitive position in a globalised economy.
Although this declaration has sparked concern and fear with certain stakeholders (mainly NGOs) of a potential scaling back of existing legal obligations, the (draft) Omnibus Regulation, which is scheduled to be published by the Commission on February 26, 2025, is set to reconcile the need for simplification without compromising on the content. This is to be achieved by (i) consolidating the CSRD, CSDDD and EU Taxonomy Regulation, (ii) reducing reporting requirements by 25 % in the first half of 2025 (Budapest Declaration on the New European Competitiveness Deal - Consilium, consideration 4) while preserving the substantive elements of the existing frameworks and (iii) promoting consistency across Member States to ensure fair and effective compliance.
While businesses may welcome any initiative aimed at reducing their administrative burdens, the absence of legal certainty as to the precise scope and nature of their current and future obligations is obviously of some concern.
A few considerations that may help to alleviate these concerns (or put them into perspective).
Firstly, by consolidating the rules as were initially laid down in Directives (CSRD & CSDDD) into a new source of law, i.e. a Regulation, the Commission will strengthen their binding force: whereas Directives are only binding as to their stated objectives and leave a greater leeway to national member states on their transposition into national law, the Regulation will not require further transposition but will become immediately applicable as of the date set in the Regulation in a uniform manner throughout the Union, thus achieving the third goal as set out in the previous paragraph.
However, as this draft Regulation will have to make its way through the institutional legislative process (involving Parliament and Council), it may well be subject to further parliamentary debate. This may be especially relevant now that the composition of the European Parliament has changed since the 2024 elections in favor of political parties for whom sustainability may not be a priority. The risk of the new Parliament backtracking on certain obligations under the existing ESG legislation can therefore not be excluded, in spite of the EU Commission’s President’s clearly stated intention “to maintain” the existing laws (Press conference of 8 November 2024 EC AV PORTAL).
For the time being, the general mood of the market and various commentators seems to be to “Keep calm and carry on”, as they tend not to expect any revolutionary deregulatory overhaul of current legislation, especially where bigger companies who are already working on processes to ensure ESG (reporting) compliance, are concerned.
The 2025 Commission work programme will feature on the Commission’s (indicative) agenda on 11 February 2025. More information should at that time become available on the next steps in this legislative process, from Commissioner Michael Mc Grath, responsible for Democracy, Justice, the Rule of Law and Consumer Protection, in charge of implementing the CSDDD, and in particular of “contributing to reducing reporting obligations by at least 25 % - and for small and medium sized enterprises to at least 35 %” (Mission Letter from U. von der Leyen, p. 4 , Michael McGrath - European Commission). The Omnibus simplification package itself is set to be published by the Executive Vice President of the Commission, Stéphane Séjourné, on 26 February 2025.
To be continued.
