On February 26, 2025, the European Commission released the Omnibus Proposal, which roughly aligns with the previously circulated version and aims to relax the relevant provisions of the Corporate Sustainability Reporting Specification (CSRD) and the Corporate Sustainability Due Diligence Specification (CSDDD). Therefore, I jokingly refer to it as the "Loose Bill". According to the proposal, about 80% of businesses within the EU will no longer be required to submit sustainability reports, and the scope of CSRD will be reduced from approximately 50000 businesses to 10000.
The key points of the revised draft of CSRD (including classification adjustments): This proposal plans to remove approximately 80% of the reporting obligations of enterprises under CSRD, focusing on large enterprises that may have the greatest impact on humans and the environment, with the aim of avoiding additional value chain burdens on small and medium-sized enterprises. For companies that were originally planned to start reporting in 2026 or 2027 but are still within the scope of CSRD, their reporting obligations will be delayed by two years until 2028. At the same time, alleviate the reporting pressure of the EU Taxonomy by limiting it to the largest enterprises (consistent with the scope of CSDDD), and provide voluntary reporting opportunities for other interested large enterprises. This move is expected to significantly reduce costs for small and medium-sized enterprises, while allowing companies seeking sustainable financing to continue fulfilling their reporting responsibilities. In addition, some activity reporting options that comply with the EU classification system have been introduced to promote the shift towards environmentally friendly activities and support transformational financing to drive businesses towards sustainable development. At the same time, a financial materiality threshold has been set for the classification report, and the report template has been significantly reduced by about 70%. Simplified the most complex 'cause no significant harm' (DNSH) standards involving the use and presence of chemicals, as the first step towards revising and simplifying all such DNSH standards. Adjusted the bank's key performance indicator based on classification - Green Asset Ratio (GAR), allowing banks to exclude risk exposures related to companies that do not fall within the scope of CSRD in the future (i.e. companies with less than 1000 employees and a turnover of less than 50 million euros) from the denominator of GAR.
The focus of the CSDDD revised draft is to simplify the requirements for due diligence on sustainable development and avoid unnecessary complexity and costs for applicable enterprises. For example, focusing systematic due diligence on direct business partners and reducing the frequency of regular evaluations and monitoring of partners from once a year to once every five years, with temporary evaluations if necessary. Reduce the burden and indirect impact on small and medium-sized enterprises by limiting the amount of information that large enterprises may require in value chain mapping. At the same time, enhance the coordination of due diligence requirements to ensure fair competition within the EU. Abolish the civil liability conditions of the European Union, while ensuring that victims can receive full compensation for damages caused by non compliant behavior, and protect businesses from excessive compensation under the civil liability system of member states. To provide more time for enterprises to adapt to new requirements, the implementation of due diligence requirements for sustainable development of large enterprises will be postponed by one year to July 26, 2028, while the adoption of guidelines will be advanced by one year to July 2026.
The European Commission's move aims to simplify corporate compliance processes and cope with downward economic pressure. According to its forecast, this revision will save EU companies 6.3 billion euros in administrative costs annually and attract 50 billion euros in new investment.
However, the ESG industry is critical of this. Prior to the release of the proposal, the Institutional Investor Group on Climate Change (IIGCC), the European Forum for Sustainable Investment (Eurosif), and the Principles for Responsible Investment (PRI) had jointly issued a statement calling on the European Commission to maintain the integrity and ambition of the EU's sustainable finance framework when discussing the comprehensive bill to revise key regulations. These three institutions believe that revising the rules could lead to legal uncertainty, threaten Europe's long-term economic competitiveness, and harm investment.
The Global Reporting Initiative (GRI) also responded quickly, with new CEO Robin Hodess stating that if the European Commission aims to enhance the competitiveness of European businesses, weakening the regulatory efforts of CSRD would be a step backwards and would raise serious questions about the EU's achievement of carbon neutrality goals. The narrowing of the scope of application of CSRD will undermine the level playing field required for achieving sustainable growth.
The revised proposal of the European Commission still needs to be reviewed and approved by the European Parliament and the Council of the European Union. I believe that given some deviations in Europe's legislative path towards sustainable development, this correction is a normal phenomenon and we should maintain an objective attitude. As for the impact of this revision on the Chinese market and Chinese enterprises, further observation is needed.