Bruegel, a leading European think-tank, has warned that the European Commission’s first ‘Omnibus package’ could jeopardise the European Union’s sustainable finance ecosystem and the broader goals of its Green Deal.
Released on 26 February and touted as an “unprecedented simplification” of reporting rules, the package aims to ease burdens on companies while facilitating access to sustainable finance for the clean transition.
Bruegel cautioned in a report published on March 3 that the proposed changes to the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD) and the Taxonomy Regulation could impact critical data collecting, distort markets and weaken investor confidence in the system.
The Brussels-based think-tank highlighted what would be a severe reduction in reporting obligations as a primary concern.
“As fewer companies are required to report on alignment, issuance of taxonomy-linked corporate funding instruments may also shrink, shrinking an already tiny niche in the sustainable finance market.”
The CSRD, initially set to deliver detailed sustainability disclosures from approximately 50,000 EU firms, would see its scope cut to just 20 per cent of those companies under the Omnibus plan, with delayed timelines and less comprehensive requirements.
Silvia Merler, an affiliate fellow at Bruegel, warned that a similarly diluted CSDDD would obscure transparency in large firms’ value chains.
The European Commission has announced a watered-down version of its planned European Union Supply Chain Act after facing criticism from the business community. https://t.co/HxzVIlgS64
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Investors had expected CSRD data to replace flawed third-party ESG ratings, which often overlooked so-called double materiality — assessing both a firm’s external impacts and its exposure to external risks.
Bruegel suggested that, with this data now curtailed, the EC must impose stricter standards on ESG ratings marketed in the EU to safeguard sustainability-focused investment.
It also flagged what it said were troubling shifts in the Taxonomy Regulation.
With just 16 per cent of EU companies’ capital expenditures currently taxonomy-aligned — far below the share of eligible activities — sectors including transport, construction and chemicals have struggled to meet environmental benchmarks.
Bruegel noted that the Omnibus’ introduction of “partial taxonomy-alignment” could aid “green” transition finance by recognising activities meeting some criteria.
Still, it warned that limiting mandatory taxonomy reporting to firms with more than 1,000 employees and €450 million in turnover would shrink the amount of available data.
This downsizing would threaten financial products under the Sustainable Finance Disclosure Regulation (SFDR), where reported taxonomy alignment may fall artificially due to missing information, confusing consumers and eroding trust in sustainability metrics, Breugel said.
On the flip side, the think-tank pointed out that firms opting for voluntary CSRD-aligned reporting could gain an edge. In the context of reduced mandatory disclosure, Bruegel suggested that accurate voluntary reporting might fetch a “greenium” — a premium from investors valuing sustainability — building on pre-Omnibus trends where many firms planned to adopt CSRD standards regardless of obligation.
The think-tank warned, though, that the Omnibus would heighten the stakes for the SFDR’s upcoming revision. An EU consultation revealed 82 per cent of respondents wanted clarity on “sustainable investment”, a concept the taxonomy was expected to define.
With taxonomy reporting scaled back, Bruegel argued that an activity-based approach to sustainable investment would become impractical.
It proposed an alternative: A top-down, entity-level evaluation of Green Deal alignment. Applicable to all firms and neutral across capital markets, this could streamline sustainable finance and reinforce incentives across the real economy and financial sector, it said.
