A leaked draft of the European Commission’s Omnibus Proposal has sparked concerns about significant rollbacks in sustainability reporting, potentially undermining ESG compliance and the EU’s carbon neutral strategy. The leaked document, which precedes the official release expected on February 26, 2025, reveals sweeping changes to the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), and the EU Taxonomy. 

Among the most controversial proposed changes is the limitation of ESG reporting requirements to only the largest companies, reducing corporate transparency obligations. If implemented, only firms with more than 1,000 employees and €450 million in turnover would be required to comply with CSRD and CSDDD, exempting thousands of mid-sized companies that were initially included. Additionally, the CSDDD would reduce the frequency of supply chain due diligence from annual assessments to once every five years, while civil liability for ESG violations would be eliminated entirely. Another major shift includes restricting value chain scrutiny to only direct suppliers, significantly narrowing corporate responsibility for environmental and social impacts. 

Experts warn that these changes could weaken corporate accountability and transparency, limiting the ability of businesses, investors, and regulators to assess climate-related risks. María Mendiluce, CEO of the We Mean Business Coalition, criticized the proposal, stating that scaling back reporting obligations will hinder companies’ ability to drive resilience, innovation, and long-term competitiveness. 

The push for deregulation stems from the EU’s Competitiveness Compass initiative, which aims to simplify regulatory frameworks to prevent businesses from seeking more favorable conditions outside the EU. The Draghi Report (2024) had highlighted that restrictive regulations were driving European entrepreneurs to the U.S. for growth opportunities. Ursula von der Leyen, President of the European Commission, defended the proposal, arguing that current reporting requirements are too redundant and overlapping, but reassured that the core sustainability principles would remain intact. 

Despite these reassurances, climate advocates and ESG-focused investors fear that these revisions could weaken the EU’s leadership in sustainable finance. Over 90 organizations, including businesses, banks, and civil society groups, had previously urged the Commission to strengthen CSRD implementation rather than dilute its impact. Additionally, U.S. lawmakers had already expressed opposition to the CSDDD, citing concerns about its implications for non-EU businesses. 

As discussions around the final Omnibus Proposal continue, the sustainability community is closely monitoring whether the EU will uphold its commitments to ESG transparency and its broader carbon neutral strategy. With corporate accountability, sustainable finance, and long-term economic resilience at stake, the final decision on these regulatory changes will have significant global implications. 

Sources: 

https://sustainabilitymag.com/articles/leaked-eu-omnibus-proposal-is-sustainability-at-risk  

https://www.responsible-investor.com/eu-omnibus-leaked-proposal-shows-heavy-watering-down-of-sustainability-reporting/ 

https://supplychaindigital.com/sustainability/leaked-eu-omnibus-proposal-is-sustainability-at-risk 

https://procurementmag.com/sustainability/eu-omnibus-leak-procurement-esg