Contentious EU Omnibus Discussion Hinders Streamlining
In a recent development, investor groups and organisations, including the Institutional Investors Group on Climate Change (IIGCC), have raised concerns about the European Commission’s "Simplification Omnibus" proposal. This proposal, aimed at reducing administrative burdens for companies, risks undermining corporate transparency and sustainability reporting, according to these groups.
Key concerns include a narrowing of reporting scope, substantial cutbacks in disclosure requirements, simplified and less detailed standards, the potential for fragmented due diligence systems, and a potential weakening of the "double materiality" principle.
The Omnibus proposes to tighten criteria for which companies must report, which could exclude about 80% of companies previously in scope. This reduction limits transparency on sustainability issues from a broad swath of companies that investors typically monitor.
The proposal plans a 57% reduction in mandatory data points and removes all voluntary disclosures, aiming to reduce reporting burdens. However, investors worry that this may omit material information essential for effective double materiality assessments and risk analysis.
Prioritising quantitative data over narrative disclosures, removing sector-specific standards, and rationalising "may" (optional) data points could result in less nuanced sustainability information, impairing investor decision-making.
The simplification moves have the unintended consequence of creating parallel and overlapping compliance processes within companies due to different requirements from the Commission, Council, and Parliament. This fragmentation undermines the goal of simplified, consistent sustainability reporting and complicates investor engagement.
Although the "double materiality" principle remains foundational, the Omnibus attempts to narrow its application, which may reduce the depth and breadth of corporate impact and risk disclosures that investors rely on for ESG integration and stewardship.
Investors and groups such as the IIGCC advocate for a careful balance. While administrative simplification and reduced burdens for companies are important, these must not come at the cost of transparency, comparability, and comprehensiveness of sustainability disclosures critical to investors’ efforts to fight climate change and promote sustainable economic growth.
The centre-left Socials and Democrats (S&D) also welcomed the principle of simplification but believe the omnibus delivers deregulation rather than simplification. MEP Lara Wolters said, "This is not a simplification of EU rules. This is the simplification of a debate."
Gresham House, a sustainable investment firm, voiced concern that the proposals, in their current form, may raise concerns about the future of corporate transparency and sustainability reporting. Hyewon Kong, sustainable investment director at Gresham House, believes that reducing administrative burdens should not come at the expense of corporate accountability and sustainability progress.
The controversial omnibus proposals were published on February 26, sparking a debate among investors, policymakers, and stakeholders about the balance between simplification and the maintenance of critical sustainability reporting standards.
- The proposal's potential weakening of sustainability reporting standards in business, particularly regarding the double materiality principle, raises concerns among finance experts like the Institutional Investors Group on Climate Change (IIGCC) and sustainable investment firms such as Gresham House.
- The European Commission's "Simplification Omnibus" proposals, which aim to reduce administrative burdens and disclosure requirements in business, are criticized as deregulation by the centre-left Social Democrats (S&D), and they argue that it could undermine the transparency and comparability of general-news in the realm of finance and politics.
