Macropolitical Context
Anna Davreux Senior Vice President and Partner, FleishmanHillard EU
Thomas Coutinho Lehnen Account Executive, FleishmanHillard EU
Here we are in Q3, and there is a lot to digest from the summer months. While some were sunning themselves, others were delivering an EU-US trade agreement.
Between threats of ever-increasing tariffs and social media politicking, it became clear that a deal needed to be reached. As Commission President von der Leyen said in her State of the Union address in Strasbourg on 10 September, “we ensured that Europe got the best possible deal out there”. Hardly ideal, but pragmatic perhaps, and arguably the only option left to von der Leyen and her team as temperatures rose.
Of course, what we want to discuss here are the implications of the deal on the EU sustainability agenda. The EU-US trade deal announced on 21 August has implications for the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD), particularly in terms of regulatory scope, enforcement, and political dynamics.
In the communication accompanying the agreement, the European Commission (EC) pledged to ensure that CSRD and CSDDD do not impose “undue restrictions” on transatlantic trade. This was a direct nod to extraterritorial implications in the Directives. Given that negotiations are ongoing, it remains to be seen how the final agreement will be impacted. But concerns have been raised about the erosion of EU legislative sovereignty, with trade negotiations seemingly pre-empting democratic processes. What is clear is that the current US administration has signalled it will not tolerate EU regulatory impositions that affect US industries, particularly fossil fuels and agriculture.
Let’s remember that the whole premise of the Omnibus 1 proposal was to reduce regulatory burden, including reducing administrative burdens for business, especially SMEs, proposing changes to the harmonised civil liability regime under CSDDD and reducing the climate-transition obligations in both Directives. However, there have been suggestions during the negotiations for a two-tiered system where stricter rules could be imposed on third-country corporates. Unsurprisingly, this has elicited strong reactions and countercalls to maintain a level-playing field.
The other big impact of the trade deal has been on a political and civil society level. We continue to see backlash to what has been seen by some as overt capitulation by the EC to US pressure. There has been strong criticism of how the EU conducted the negotiations, especially from NGOs, sustainability advocates, and EU lawmakers, including Commissioner Ribera, the leading social-democrat in the EC. Many warn that embedding deregulation in a trade deal could lock in weaker standards for years. Any softening of the EU’s green commitments further strains the “von der Leyen coalition”, the political groups that supported her re-election as President for a second term (EPP, S&D, Renew Europe, and the Greens). Indeed, there was an immediate reaction from the S&D Group when von der Leyen chose not to champion the Green Deal in her State of the Union address. She instead spoke to the importance of climate resilience and nature-based solutions, with a focus on renewables and nuclear power as Europe’s path to energy independence. A further sign that the EU’s green agenda has shifted towards pragmatism over idealism.
All of this will have implications for the ongoing Omnibus 1 negotiations. The European Parliament (EP) position will very much depend on whether a majority is sought from the centre or from a centre-right/far-right majority. The European debate on ESG simplification has entered a decisive but deeply complex phase.
Navigating Omnibus 1 Negotiations
European Parliament: Warborn’s compromises under pressure
The EP’s work is proving as divisive as many expected. Rapporteur Jörgen Warborn’s (EPP, SE) most recent set of compromises edge closer to the political centre on CSRD scope, but move further towards the Council position on CSDDD, which fixes the scope at 5,000 employees and €1.5 billion turnover. On CSRD reporting, Warborn suggests lowering his proposed employee threshold to 1,750 (rather than 3,000) while keeping the €450 million turnover trigger. This is framed as a middle ground with Renew, S&D, and Greens, who continue to push for much lower thresholds, but still leaves him short of a clear majority.
On the EU Taxonomy, Warborn suggests removing the optional reporting regime for mid-sized companies, though in practice his scope proposal already takes these companies out. Within the EPP, pressure is mounting to go further still and scrap mandatory taxonomy reporting altogether, an idea that centrist and left groups fiercely oppose.
Compromises on transition plans and due diligence also expose fractures. Warborn and Renew’s Pascal Canfin favour “reasonable efforts” with fewer prescriptive requirements, whereas the Greens and S&D want climate transition planning to remain firmly tied to the 1.5-degree target and intermediate milestones. On due diligence, left-of-centre groups push for obligations to extend beyond direct suppliers, while Warborn insists on a more limited scoping exercise based on “reasonably available” information.
The timetable is ambitious but fragile: further negotiation meetings are scheduled for late September, with a committee vote pencilled in for 13 October and a possible plenary vote in the week of 20 October. Whether that schedule can be maintained depends entirely on the pace of compromise which, at present, looks uncertain.
Council: thresholds and carve-outs dominate
By contrast, the Council has already settled on its general approach, giving a clearer sense of how Member States are interpreting simplification. The idea behind the deal is to raise reporting thresholds and limit knock-on obligations for smaller firms. Under the Council text, only the largest EU companies and listed entities — those with over 1,000 employees and high turnover — would remain firmly in scope, with equivalent triggers applying to non-EU groups with a significant presence in Europe.
Alongside this, national ministers agreed on a series of carve-outs and delays. These include postponing any potential extension of scope until 2029, restricting how far large companies can demand sustainability data from smaller suppliers, and easing requirements for third-country auditors. Together, these measures reflect a determination to shield mid-sized and smaller firms from additional burden, even at the cost of narrowing the policy’s overall reach.
On due diligence, the pattern is similar. The Council opted for higher thresholds, a tighter focus on direct business partners, and a two-year delay to transition planning requirements, which are framed on a “reasonable efforts” basis. Efforts to introduce harmonised civil liability at EU level have been firmly abandoned, while financial penalties are capped at 5% of global turnover.
EFRAG’s simplification drive
While political negotiations are grinding on, EFRAG has been reshaping the European Sustainability Reporting Standards (ESRS) that underpin the CSRD. Its exposure drafts, out for consultation, aim to reduce burdens by cutting down data points, clarifying materiality, and aligning more closely with global frameworks.
Headline figures include mandatory data points reduced by 57%, and overall disclosure requirements — including previously voluntary points — reduced by 68%. Narrative requirements have been made less granular, and many voluntary datapoints have been reclassified as methodological application requirements or shifted to non-binding guidance. The intent is to simplify without dismantling.
EFRAG is also pushing interoperability. The drafts build stronger connections with ISSB and GRI standards, recognising that multinational companies need alignment across jurisdictions. The double materiality assessment has been streamlined, starting with a “top-down” business model analysis before delving into specific issues, supported by proportionate evidence.
Notably, EFRAG’s revisions stop short of areas still being negotiated at Level 1 — such as the scope of transition plan requirements and sensitive information reliefs. This underlines that while technical simplification is progressing, its boundaries remain politically defined.
Where the politics leaves policy next quarter
In Council, a consensus exists, while in the EP, divisions cut across and within party groups, leaving the fate of Omnibus 1 highly uncertain. Meanwhile, EFRAG is offering its own simplification package, but its impact will depend on how much of the legislative architecture survives the political process intact.
Looking ahead to Q4, the key question is whether EP can converge around thresholds and transition planning, or whether entrenched positions delay the vote and push compromises into 2026. For companies, the message is mixed: technical relief is on the horizon through revised ESRS, but the broader obligations — who reports, what they report, and how transition plans are framed — remain hostage to political bargaining.
Tracking the reshape: where do we stand?
Join us for the next edition of Political Pulse – SFDR reform on the horizon.
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