Navigating the EU’s ESG Regulatory Landscape
The EU is actively reshaping its Environmental, Social, and Governance (ESG) regulations, creating a dynamic environment for businesses. With frequent updates from the European Commission, Council, and Parliament, companies need to stay informed to keep up with compliance requirements.
This article offers an overview of the latest changes in key ESG regulations, including the EU Deforestation Regulation, Omnibus I, Omnibus IV, and the Green Claims Directive. These updates affect how businesses operate and plan for the future.
EU Deforestation Regulation: Key updates
The EU Deforestation Regulation (EUDR) aims to reduce deforestation linked to EU supply chains. Originally set to start at the end of 2024, its implementation has been delayed by one year, now leaving companies six months to prepare. The European Commission recently proposed a Delegated Act to simplify Annex I, which lists commodities and products within the scope of the law. They also released an early version of the country benchmarking list, ranking countries by risk. This list will guide companies in assessing their due diligence responsibilities.
Meanwhile, some EU member states, and political groups are pushing to reopen the discussion on a new “no risk” country classification. More on the EUDR
Omnibus I: simplifying ESG rules
Omnibus I is a major effort to simplify several ESG regulations, including the Corporate Sustainability Reporting Directive (CSRD), Corporate Sustainability Due Diligence Directive (CSDDD), EU Taxonomy, and Carbon Border Adjustment Mechanism (CBAM). A provision agreement on CBAM is expected for adoption in September.
For the CSRD, the European Financial Reporting Advisory Group (EFRAG), suggests reducing the European Sustainability Reporting Standards (ESRS) data points by 50%. The Council also proposes increasing the threshold of 1,000 employees and net turnover of 450 million euro in turnover, excluding listed small and medium-sized enterprises (SMEs).
The Council’s position also covers the CSDDD:
Increased threshold of 5,000 employees and 1.5billion euro net turnover
Due diligence requirements stay limited to own operations, subsidiaries and tier 1 suppliers
Proposes that the identification and assessment obligations are extended in case of objective and verifiable information suggesting adverse impacts beyond direct business partners
Climate transition plans to include implementing actions and a 2-year delay on the obligation to adopt such a plan
Extension of the transposition deadline with another year to 26 July 2028
The Rapporteur for the European Parliament issued his recommendations, going well beyond the original simplifications proposed by the Commission, e.g. increasing the threshold further to 5,000 employees. The European Parliament is much divided, and a joint position is not around the corner. Several MEPs are pushing back on the rapporteur’s proposal with amendments of their own.
Omnibus IV
In May, the Commission introduced Omnibus IV. Key updated include:
Introduction of Small Mid-Caps (SMCs) to bridge the SME-large enterprise gap. This new classification applies to companies with fewer than 750 employees and either up to €150 million in turnover or up to €129 million in total assets.
Exemptions for Smaller fluorinated greenhouse gas registration. Smaller companies that handle limited volumes of fluorinated greenhouse gases would be exempt from the obligation to register in the EU F-gas Portal.
GDPR record keeping simplification for small and medium enterprises. Small and medium-sized companies and newly defined SMCs (companies with fewer than 750 employees) will only be required to maintain records of personal data processing if the processing is considered “high risk” under the GDPR.
Digitization of compliance documentation to replace paper-based processes.
Facilitating product compliance through common specifications.
Delay in battery regulation due diligence obligations. Originally set to take effect from August 2025, the Battery Supply Chain Due Diligence obligations would be delayed until 2027. This follows the EU’s failure to publish the corresponding guidance by the planned date in February. The guidance is expected to be available one year before the new obligations commence. This delay also applies to the setting up of third-party verification bodies responsible for overseeing compliance.
Green Claims Directive: what’s happening now
The Green Claims Directive, meant to regulate environmental claims, hit a snag recently. The day before the Green Claims Directive Trilogue negotiations were to happen, the Commission mentioned its intent in a press conference to retract the directive, stating it contradicts its intentions to simplify regulation. The day after, the Commission stated it does not intend to cancel the GCD, but did say it objects to a proposed amendment that would include millions of Microenterprises (<10 employees) in its scope. The Commission cancelled the Trilogue meeting and called on the Council and Parliament to revisit the proposed amendment, saying it would in fact retract the directive in case the amendment is kept.
Staying ahead: what you need to know
The EU’s ESG landscape is complex and fast-changing. While details shift, the focus on supply chain transparency or human rights and environmental due diligence are not going away but are firmly embedded in EU and global regulation.
Staying focused means putting processes and activities in place to understand what your products are made of, where raw materials come from, where products and components are made, who made them and under what conditions.
Contact us to know how we can help.
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