The EU Omnibus and business and human rights risks

Maximilian O’Driscoll
Watson Farley & Williams, London
modriscoll@wfw.com
 

Introduction

So far, 2025 has seen significant activity relating to the Omnibus simplification package presented by the European Commission on 26 February 2025. On 3 April 2025, the European Parliament adopted the Omnibus Stop-the-Clock proposal that directly addresses the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD), delaying the application of the CSRD for large companies by two years, and delaying the transposition and application of the CSDDD for the largest companies by one year. On 23 June 2025, the Council of the European Union reached an agreement in respect of the Omnibus simplification package, proposing to modify the substantive content of the CSRD and CSDDD.[1] The Council’s position is considerably more pro-business than the Commission’s initial proposal, reducing the scope of both directives, as well as the substantive reporting and due diligence requirements contained therein. The Council will now defend its position in the final stage of negotiations with the European Parliament and the Commission later this year. Financial institutions have warned that if accepted the Council’s proposal will exacerbate the issue related to a lack of quality environmental, social and governance (ESG) data, including data on human rights impacts.

The ‘pro-business’ position adopted by the Council of the European Union

The Council’s position aims to simplify the CSRD and CSDDD by reducing the reporting burden on in-scope companies and limiting the trickle-down effect of the obligations on small- and medium-sized enterprises (SMEs) in a bid to boost European competitiveness. Key changes to the CSRD include higher thresholds, amending assurance requirements and transition plan disclosures, withholding certain sensitive information and limiting value chain disclosures. Key changes to the CSDDD include higher thresholds, reducing the scope of risk analysis, limiting the required preventative and correction action, aligning the reporting obligations with the CSRD, limiting transition plan obligations and civil liability, amending pecuniary penalties and postponing the transposition date.

The Council’s position recognises the important role of a streamlined ESG regulatory environment for businesses in enhancing EU competitiveness. Adam Szłapka, Minister for the European Union of Poland, announced in a press release on 23 June 2025 that the Council’s position represents a ‘decisive step towards our common goal to create a more favourable business environment to help our companies grow, innovate, and create quality jobs’. However, despite the Council’s commitment to competitiveness, some financial institutions have expressed concern that the Omnibus simplification package exacerbates long-standing issues concerning the availability of harmonised and quality ESG data, including data on human rights impacts.

Concerns raised by financial institutions

Financial institutions have generally voiced support for the Commission’s and Council’s efforts to streamline the sustainable finance framework in order to reduce reporting burdens for in-scope companies, increase its usefulness for investors and end users and to support sustainable investment. However, many financial institutions have also acknowledged the important role of a robust sustainability reporting framework in increasing the availability of quality ESG data. In a statement dated 8 May 2025, the European Central Bank (ECB) expressed concern over the Commission’s proposed draft of the Omnibus simplification package:

‘Harmonised reporting, rather than fragmented individual data collection […] serve [s] to avoid unnecessary compliance costs for both reporting companies and users of data. A harmonised approach enables a comprehensive understanding of potential risks and opportunities for the benefit of companies, market participants and policymakers, thus facilitating informed and strategic decision-making […]. The absence of sustainability information, on the other hand, could give rise to systemic risks that threaten financial stability. Issues with the availability, quality and granularity of ESG data, as well as the lack of comparability and transparency of such data, remain a major challenge’.

On 23 June 2025, in a letter titled ‘Safeguarding the EU Sustainability Framework’, a group of former high-level politicians and decision-makers expressed concern in respect of the Council’s latest position, arguing that robust sustainability reporting and due diligence frameworks on the one hand, and competitiveness on the other hand, are not mutually exclusive:

‘We reject the false dichotomy between sustainability and social responsibility on one hand, and efficiency and competitiveness on the other. On the contrary, these goals are both compatible and mutually reinforcing: a strong commitment to sustainability enhances competitiveness, builds resilience, mitigates risk, and ultimately contributes to long term value creation and trust’.[2]

The European Sustainable Investment Forum voiced similar concerns to those of the ECB earlier this year, commenting that the sustainability reporting and due diligence obligations under the CSRD and CSDDD as originally envisaged enable investors to make informed decisions to manage risks, identify opportunities and, ultimately, reorient capital towards a more competitive, equitable and prosperous net-zero economy.[3] Similarly, the Principles for Responsible Investment has warned that the latest proposal risks creating data gaps and hampering the objectives of the European Clean Industrial Deal.[4]

Impact on business and human rights risks

The Council’s proposal to limit the scope of the CSRD and CSDDD, as well as the substantive sustainability reporting and due diligence requirements contained therein, reduces the availability of quality ESG data, thereby making it more difficult for in-scope companies to assess the human rights impacts of their operations and making it more difficult for financial institutions to reorient capital towards more sustainable investments with lower adverse human rights impacts.

It is widely recognised that a significant proportion of adverse human rights impacts occur at the more distant levels of global supply chains, such as manufacturing and extraction. This has led numerous commentators to question whether the Council’s proposal to limit the human rights due diligence measures contained in the CSDDD to direct business partners only (with limited exceptions) still upholds the Directive’s aim of fostering responsible business conduct throughout global supply chains. The Council’s proposal represents a departure from the risk-based approach to human rights due diligence enshrined in the United Nations Guiding Principles on Business and Human Rights (UNGPs) and the Organisation for Economic Co-operation and Development’s (OECD) guidelines. If the Council’s proposal is accepted, in-scope companies will no longer be required to conduct human rights due diligence and gather data on the areas of their supply chains where adverse human rights impacts are most likely to occur. This will further exacerbate the lack of available quality ESG data, including data on human rights impacts, from high-risk areas of in-scope companies’ operations.

Conclusion

In agreeing on the final draft of the Omnibus simplification package, the Commission, Council and Parliament are tasked with a difficult balancing act. While all sides of the debate seemingly encourage the Council’s ambition of streamlining the European sustainability framework and reducing compliance costs for in-scope companies in order to foster a competitive EU economy, the lack of harmonised and quality ESG data (in particular, from more distant levels of global supply chains where adverse human rights impacts are most likely to occur), exacerbated by the Council’s proposed changes to the CSRD and CSDDD, continue to cause issues for financial institutions.