Voluntary reporting is unlikely to close the data gap, both in terms of the quantity of companies effectively reporting and the quality of the information provided. Using basic, voluntary questionnaires intended for very small entities would lead to fragmented disclosures, diminishing data quality, comparability, and reliability. Market feedback has indicated that going beyond voluntary reporting is essential to avoid these drawbacks, which is why EU regulators designed the CSRD.
Due to the Omnibus initiative, investors are likely to focus on a select number of companies that fall within the CSRD scope and provide reliable information, limiting financing opportunities for smaller, out-of-scope companies, including mid-caps. This will also constrain the availability and diversity of sustainable financial products, despite the clear demand from investors, including EU citizens. This approach runs counter to the goals of promoting sustainable growth outlined in the Clean Industrial Deal and mobilizing retail savings to help bridge the EU’s investment gap as proposed in the Savings and Investments Union.
Cutting due diligence blinds investors
The CSDDD is facing significant risks in current institutional discussions. Initially, introducing a framework to help companies identify, prevent, and address serious human rights and environmental risks across their value chains was an important step to accelerate the transition to industrial decarbonization and sustainable value creation.
For investors, the CSDDD offers a structured approach that enhances transparency and enables a more accurate assessment of material environmental and human rights risks across portfolios. This addresses long-standing due diligence data gaps and promotes better-informed decisions. Additionally, the CSDDD provisions for adopting and implementing corporate transition plans, including science-based climate targets aligned with CSRD disclosures, provide an essential forward-looking tool for investors to promote industrial decarbonization, consistent with the EU’s Clean Industrial Deal objectives.
Limiting due diligence obligations to direct suppliers (Tier 1) in the Omnibus proposal risks turning the directive into a mere compliance formality, reducing its value for businesses and investors. The original CSDDD focused on the most significant risks across the entire value chain, where harm is most likely to occur. A supplier-based model would miss critical information and material risks needed by investors. It would also deviate from widely accepted international standards such as the OECD guidelines for Multinational Companies and the UN Guiding Principles.
The requirement for companies to adopt and implement their climate transition plans is also at risk, seen as overly stringent. However, the obligation to adopt and act on transition plans was meant as an obligation of means, not results, providing businesses flexibility while giving investors a clearer view of corporate alignment with climate targets. Weakening or removing these provisions could reduce transition plans to mere paperwork with no follow-through, negatively impacting the trust investors have in corporate decarbonization pledges.
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