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The set of regulations in the EU-wide sustainability sectors presently include several initiatives: EU Green deal, the EU Taxonomy package, Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD or CS3D), as well as the recent Clean Industrial Deal; the latter is a “joint roadmap for the European competitiveness and decarbonisation”, which was adopted in February 2025.
Background
The EU’s integration process has been historically based on the so-called social market economic model. However, due to a dominating role of the European Commission in the process, the “social economy” turned the EU-wide executive institution into a dominating and superficial actor in excessive regulations by the EU-wide directives and regulations. Suffice it to mention that there are presently over eighty thousand different regulatory instruments in the integration process. The same process is seen in the EU’s dealing with modern challenges, such as sustainability, climate mitigation, competitiveness and energy, to name a few.
Note. For example the set of regulations in the sustainability “sector” includes: EU Green deal, the EU Taxonomy package, Corporate Sustainability Reporting Directive, CSRD; the Corporate Sustainability Due Diligence Directive (CSDDD, or CS3D), as well as the recent Clean Industrial Deal as a “joint roadmap for the European competitiveness and decarbonisation”, (adopted in February 2025). The Commission is aware of excessive legal means and has adopted the Omnibus Simplification package: i.e. the set of suggested means of simplification was released this February).
The legislative burden
= The Green Deal, as a “holistic legal regulation” is composed of a series of directives addressed to businesses in order to report on carbon emissions and preventing climate change; i.e. mainly it is about reducing greenhouse gas emissions, GHG. The European Green Deal is a sort of the EU’s green growth strategy; launched in 2019, it consists of a package of policy initiatives, which set the EU on the path to a green transition, with the ultimate goal of reaching climate neutrality by 2050.
More on the “green deal” in: https://ec.europa.eu/commission/presscorner/detail/en/ip_19_6691
To secure European growth through industrial innovation and clean tech, the “industrial plan” in the Green Deal is based on four key pillars: – predictable and simplified regulatory environment; – faster access to funding; – enhancing skills; and – open trade for resilient supply chains.
As the President of the European Commission underlined, the EU would like “to show the way with speed, ambition and a sense of purpose to secure the EU’s industrial lead in the fast-growing net-zero technology sector”; thus, the EU is determined to take a global lead in the clean tech revolution. To reach the goal the EU green deal, the Commission suggested several legal drafts.
Source and citation from: https://commission.europa.eu/strategy-and-policy/priorities-2019-2024/european-green-deal/green-deal-industrial-plan_en
= The second in line legal instrument is the EU Taxonomy for Sustainable Activities, which created a corporate classification system to deliver green and climate-friendly business activity.
The taxonomy revisions are supposed to focus on refining criteria for transition activities, particularly in sectors like manufacturing and transport. Hence, clearer thresholds for what qualifies as “substantial contribution” versus “significant harm” are expected addressing industry concerns about corporate feasibility. However, the core framework will remain largely unchanged to maintain regulatory stability for investors” noted C. Milagre, a lawyer specializing in the area of energy and natural resources from Portugal.
Source: https://www.linkedin.com/in/catarina-milagre-1bab535b/
The current EU taxonomy framework is over-complicated, over-engineered and not fit for purpose. It does not cover the full scope of economic activities that could be considered sustainable and current turnover alignment levels average 12%, leading to limited usability and low value for financial markets. The proposed simplifications include the use of estimations and the introduction of voluntary disclosures to help streamline both EU taxonomy reporting and the intended use cases for market participants.
= The third legislative means is the EU’s Corporate Sustainability Reporting Directive, CSRD which established a standard for companies to reporting climate impacts, including GHG emissions and other environment-type actions. The first phase of the CSRD required reporting to begin in 2025, although the implementation of the directive must first occur at the national level. Initially proposed in April 2021, the CSRD increases existing reporting requirements for businesses operating in the EU. The proposed directive replaced the then existing Non-Financial Reporting Directive, greatly expanding the scope of the reporting and the number of impacted businesses. The new reporting requirements go beyond traditional financial reporting to include environmental, social, and governance actions of businesses.
The deadline for implementation was July 2024; but only eight of the EU-27 member states had fully implemented the CSRD into national law: Denmark, France, Hungary, Ireland, Italy, Lithuania, Slovakia, and Sweden; Bulgaria and Croatia implemented it soon after. The Commission has given the rest of the countries two months to comply or face penalties.
The CSRD introduces new rules on sustainability reporting requiring the big firms and listed companies (excluding micro-undertakings) to disclose information on the social and environmental circumstances in their activities and on the efforts to mitigate corporate impact on people and the environment. This helps investors and other stakeholders to evaluate the sustainability performance of companies; the new sustainability reporting rules apply from financial years beginning on or after 1 January 2024.
More on CSRD in: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32022L2464
The small mid-cap companies will probably favor best: this will probably mean that many companies that were going to be obliged to report in 2026 (companies with more than 250 employees and/or net turnover of €40m and/or balance sheet total of €20m) will be excluded from the law and will become part of those companies that may or may not opt to report under the so-called “voluntary standards for SMEs” that EFRAG has developed.
EFRAG was established in its current legal form in 2001, following a request of the European Commission to the private sector, to provide input into the development of IFRS Accounting Standards and to provide the European Commission with endorsement advice, technical expertise and advice on accounting matters. EFRAG’s mission is to serve the European public interest in both financial and sustainability reporting by developing and promoting European views in the field of corporate reporting; EFRAG builds on and contributes to the progress in corporate reporting.
More on EFRAG in: https://www.efrag.org/sites/default/files/sites/webpublishing/SiteAssets/IG%201%20Materiality%20Assessment_final.pdf
However, Germany and France are asking for a two-year deferral of the law, which may also occur at the same time, causing a significant group of companies to start reporting not in 2026, but in 2027. It is apparent to expect a cut in the indicators to be reported by companies: the Commission is evident that reduction of the reporting burden by at least 25% for all companies and at least 35% for SMEs is positive; if this happens, it will have to be explained very well, as there are already many European companies reporting on the basis of EFRAG, noted Spanish expert Javier Molero Segovia, Director of Projects and Sustainability at the UN Global Compact.
Note: McGowan J. is writing about ESG policy in Forbes, e.g. https://www.forbes.com/sites/jonmcgowan/2025/02/22/the-future-sustainability-reporting-in-the-eu-after-the-omnibus/
= The fourth legal initiative is the Corporate Sustainability Due Diligence Directive (CSDDD, or CS3D) adopted in May 2024 with the aim of creating additional reporting requirements and legal liability for companies in relation to their supply chain. The intent is not only regulating the direct actions of a company, but also assuring that their suppliers comply with climate and human rights goals. However, the CSDDD faced significant pushback during the final stages, only finding approval after significant changes that reduced the scope.
João Maria Botelho, a lawyer practicing in ESG, energy and climate change regulation, anticipates that the final CSDDD will include a narrower scope of liability for parent companies, balancing corporate accountability with legal certainty. It is possible to witness soon further alignment with the OECD due diligence standards, ensuring feasibility for multinational corporations. Additionally, while a firm leadership’ duties may remain in the directive, enforcement mechanisms could be softened, shifting from strict liability towards a more risk-based, proportional approach in supply chain due diligence.
Thus, a lot of emphasis has been placed on taking into account riskiest or most harmful activities of companies; J. M. Segovia from the UN Global Compact suggests the following perspectives: a) to increase the deadline for implementation of the directive, which as of today would come into force in 2027; it could easily go to 2028 or more; b) there will be fewer companies affected by the directive; currently it will affect all companies with more than 1,000 employees and more than €450 million in turnover in 2029 (this is unlikely to be maintained, as France has already requested that only companies with more than 5,000 employees be affected); c) there are likely to be more “cuts’’ in the value chain activities for which a due diligence process must be implemented, as the Commission emphasizes “ taking measures to prevent smaller companies in the supply chains of large companies from being subject to excessive ESG reporting requirements”.
= And finally, the Omnibus Simplification Package, which includes proposals to streamline multiple EU sustainability regulations, including the CSRD, EU Taxonomy and CSDDD, into a unified framework. The Commission President stated in mid-November 2024 that the EU institutions (i.e. the Council and Commission) would have an omnibus bill that will take “a huge approach to reduce in one step, in all the different fields in the form of triangle: Taxonomy, CSRD and CSDDD (hence, the omnibus). The new proposals will cut red tape and simplify EU rules for citizens and business: already in the recent Competitiveness Compass, the Commission set out its vision to make the EU’s economy more prosperous and competitive, building on the recommendations of the Draghi report. To regain competitiveness and unleash growth, the EU needs to foster a favourable business environment and ensure that companies can thrive.
The first two so-called Omnibus packages of simplification measures include measures focusing on sustainability reporting obligations on the largest companies which are more likely to have the biggest impacts on people and the environment, and make sure they do not burden smaller companies.
More on Omnibus I in: https://finance.ec.europa.eu/publications/commission-simplifies-rules-sustainability-and-eu-investments-delivering-over-eu6-billion_en
The second Omnibus package is about financial resources provided by the InvestEU Program and gives an additional boost to investment, innovation and job creation in Europe during 2021-27. It aims at triggering a new wave in investments using an EU budget guarantee with more than €372 billion.
More in: https://investeu.europa.eu/index_en
The simplification of EU Taxonomy reporting process includes: a) voluntary reporting for companies with fewer than 1,000 employees; b) 70% reduction in reporting templates and introduction of a financial materiality threshold to focus reporting on significant business areas; c) Companies that were set to report in 2026 or 2027 now have until 2028 to comply; d) €6.3 billion in administrative cost savings, EU’s simplifies reporting, due diligence and trade compliance to boost business competitiveness; e) the CSRD scope reduced by 80% and SMEs and mid-sized companies are relieved from mandatory sustainability reporting; compliance deadlines extended to 2028; finally, about €50 billion in new investment is unlocked and InvestEU expansion will mobilize public-private funding for clean tech, digitalization, and infrastructure.
Note: Omnibus legislation is routinely used by the US Congress to group together the budgets of all departments in one year in the so-called “omnibus spending bill”.
Source: https://esgnews.com/the-eus-omnibus-simplification-is-out-what-businesses-need-to-know/
Additionally, there is a new regulatory initiative concerning the Clean Industrial Deal as a “joint roadmap for the European competitiveness and decarbonisation”; it was adopted in February 2025.
More on “clean industrial deal” in: https://commission.europa.eu/document/download/9db1c5c8-9e82-467b-ab6a-905feeb4b6b0_en