Brussels launches plan to ease corporate sustainability requirements and cut costs by €6.3 billion

Brussels is launching its process of regulatory simplification, or deregulation in the eyes of the most critical, to reduce administrative obstacles, with a focus on small and medium-sized companies. The European Commission launched its first Omnibus package on Wednesday to ease reporting requirements on corporate sustainability and community taxonomy rules in order to reduce administrative costs by 6.3 billion euros annually and mobilise 50 billion euros in public and private investment. A package that reduces by 80% the companies that must report on their environmental responsibility and lowers fines for firms that do not mitigate their impact on environmental or social sustainability.

The objective was set by the Community Executive when it outlined, last January, its Compass to boost the competitiveness of the community block, within which this simplification process is framed: to reduce bureaucracy for SMEs by 35%. The Omnibus package proposes to delay the Sustainability Reporting Obligations for companies and reduces by 80% the proportion of firms that must report on the impact of environmental, social and risk sustainability associated with their activities .

Specifically, the European Commission has proposed postponing corporate sustainability reporting obligations by two years to 2026 and 2027, while giving Member States more time to transpose this regulation into their respective national legislation.

Wednesday's proposal also affects the Due Diligence regulations, in an attempt to prevent SMEs from being subject to the same requirements as the large companies to which they are suppliers. It provides relief for the supply chain by excluding small companies from providing information on their environmental sustainability practices. The review will exclude all companies with less than 1,000 employees and an annual turnover of 50 million euros.

It will also affect penalties under this regulation. While until now companies could face a minimum fine of 5% of their annual global turnover for non-compliance with this regulation, the Omnibus package opens the door to reducing penalties by removing the threshold. In this way, fines are reduced for companies that do not mitigate their impact on environmental or social sustainability and human rights.

In this segment, the obligation for companies to terminate contracts with suppliers who violate due diligence regulations disappears, giving more room for resolving the problem.

The revised corporate sustainability standard also includes an exception for companies with more than 1,000 employees and a turnover of less than 450 million euros, so that notifications on Taxonomy will be voluntary.

In addition, the European Commission is proposing changes to the taxonomy regulations to simplify reporting requirements of almost 70%. It also adjusts the Green Asset Ratio (GAR) used by banks on their exposure to companies that align with the corporate sustainability directive. The package also reduces the scope of mandatory reporting on operating expenses. It also simplifies certain 'Do no significant harm' (DNSH) criteria, relating to the prevention of pollution or the presence of chemicals.

As regards the carbon border adjustment mechanism, CBAM, Brussels proposes to cut by 90%, to 182,000 companies, the number of European importers who will be obliged to pay taxes when they import products, such as steel or cement, produced outside the EU due to higher emissions, by setting the threshold for them to be obliged to pay at 50 tonnes of CO2 per year.

For importers still subject to this mechanism, the processes for authorising declarations , emissions calculations, reporting requirements and financial responsibility will be simplified.

The proposal of the Community Executive has not been free of controversy. The European Commission is under fire for initiating a process that, in the eyes of its most critical critics, is deregulation, not regulatory simplification, as the Community Executive claims. In addition, there is still concern that this process will lead to a lowering of environmental standards and demands on business sustainability, disrupting the steps taken within the framework of the European Green Deal.