Investors with a combined worth of €6.6 trillion urge the European Union to maintain regulations focused on Environmental, Social, and Governance (ESG) matters.
EU Sustainability Regulations Under Review: Investors Warn of Potential Weakening
The European Commission's Omnibus package, currently under negotiation, aims to revise key sustainability rules, including the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), and the EU Taxonomy Regulation. This review has sparked concerns among investor groups, who fear potential revisions could dilute the ambition and robustness of ESG disclosures.
The Omnibus proposal, unveiled in early 2025, is undergoing ongoing negotiations between the European Parliament, the Council, and the Commission, with final votes expected in late 2025 or early 2026. The package aims to simplify compliance, reduce burdens, and better integrate the framework.
Several changes have already been enacted under the so-called "stop-the-clock" Directive, entered into force in April 2025. This Directive has postponed the application deadlines for CSRD obligations for some companies by two years and delayed the CSDDD by one year. However, these deferments do not fully extend to all companies, and certain waves of reporting under CSRD remain on the original timeline, prompting "quick fix" amendments by the Commission in mid-2025.
Investors are concerned about the potential revisions to key sustainability requirements because the Omnibus package proposes narrower scope thresholds for companies subject to CSRD and CSDDD, potentially exempting smaller companies from reporting or due diligence. It also suggests simplifications and reductions in the number of required reporting datapoints and due diligence criteria, which some fear might dilute the ambition and robustness of ESG disclosures.
These potential revisions raise concerns that the EU might weaken key sustainability rules amid pressure from business lobbyists and political debate, risking less transparency, reduced comparability, and diminished investor confidence in ESG disclosures.
Despite the postponements and proposed simplifications, EU regulators emphasize that the long-term trajectory remains toward more comprehensive and rigorous sustainability reporting and due diligence. Companies and investors are therefore urged to treat these delays as opportunities to improve data collection and sustainability strategies rather than expecting permanent easing.
The investor groups, including the Institutional Investors Group on Climate Change (IIGCC), the European Sustainable Investment Forum (Eurosif), and the Principles for Responsible Investment (PRI), have issued a joint statement warning about this potential outcome. A more effective approach, according to the investor groups, would be to focus on streamlining the technical standards and providing clear implementation guidance.
The long-term competitiveness of Europe's net-zero industry and its economic resilience could be undermined by watered down sustainability reporting standards. The estimated annual investment gap in the EU is €750-800bn per year. Investors representing €6.6 trillion in assets have called on the European Commission not to scale back the bloc's ESG regulations.
Alexander Burr, ESG policy lead at Legal and General Investment Management, supports the European Commission's efforts to develop a robust and ambitious sustainable finance framework. As a global investor, Alexander Burr needs access to high-quality, consistent, and comparable disclosures across markets. European companies reported €440bn of Taxonomy-aligned capital expenditure by 2024, a figure expected to grow significantly.
Nevertheless, both France and Germany, the EU's two largest economies, have pushed to scale back ESG regulations due to concerns about free competition with the US and Asia. France has called for a "massive" regulatory pause and urged EU officials to ensure that small and mid-sized companies aren't unduly burdened by reporting rules.
The EU Taxonomy, the CSRD, and the CSDDD are among the regulations that could be revised. The EU Taxonomy is designed to standardise green definitions, while the CSRD obligates corporates to report on sustainability issues and the CSDDD tackles ESG risks in global supply chains. Germany wants the EU to delay the Corporate Sustainability Reporting Directive (CSRD) by two years and to water down several details. Reopening these regulations could create regulatory uncertainty and potentially jeopardize the European Green Deal.
In summary, the Omnibus package could lead to the wholesale revision of key sustainability requirements. The investor groups warn that weakened ESG regulations could potentially jeopardize the European Green Deal's objectives. Despite these concerns, the investor groups still support the overall objective of simplifying and improving the coherence of ESG rules. The rules help investors make informed decisions to manage risks, identify opportunities, and reorient capital towards a more competitive, equitable, and prosperous net-zero economy.
- The Omnibus proposal, currently under negotiation, could potentially narrow the scope thresholds for companies subject to environmental-science regulations like the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD), raising concerns among investor groups about the dilution of ESG disclosures in climate-change discussions.
- Despite pushing for revisions to certain sustainability requirements, such as the Corporate Sustainability Reporting Directive (CSRD) and the EU Taxonomy, sustainability-focused investor groups, like the Institutional Investors Group on Climate Change (IIGCC), the European Sustainable Investment Forum (Eurosif), and the Principles for Responsible Investment (PRI), uphold the overall objective of improving and simplifying the coherence of ESG rules, as they play a crucial role in helping investors make informed decisions for managing risks, identifying opportunities, and reorienting capital towards a more competitive, equitable, and prosperous net-zero economy.
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