EU Parliament Rejects Rollback in Sustainability Reporting

Earlier this week, the European Parliament narrowly rejected an “omnibus” directive, which included proposals intended to reduce sustainability reporting obligations for companies operating in the European Union (EU).  The “omnibus” directive was introduced in February 2025 and, if approved, would have exempted 80% of companies that were originally set to be covered by the scope of the Corporate Sustainability Reporting Directive (CSRD), mandating the publication of regular reports regarding companies’ ESG risks in accordance with European Sustainability Reporting Standards.  The rejected directive would also simplify and reduce the scope of several other key regulations, including the Corporate Sustainability Due Diligence Directive (CSDDD) and the Taxonomy Regulation.

This development reveals a tension in the priorities of the European Parliament and several EU countries, who have expressed interest in decreasing the regulatory burden on EU companies to make them more competitive and more attractive to foreign investment.  In addition, the U.S. Department of Energy Secretary and Qatar’s Minister of State for Energy Affairs, who represent the world’s two largest exporters of liquid natural gas, sent a joint letter to the Heads of State of EU countries, claiming that the CSDDD poses a significant threat to the future growth and competitiveness of the EU’s industrial economy and calling for a repeal or revision of key CSDDD provisions.

The “omnibus” directive will be sent back to the negotiation stage in Parliament, allowing for potential amendments, and is expected to be presented for a second vote in November.  It remains to be seen where European sustainability reporting requirements will ultimately settle, as political parties in the EU continue to disagree over the appropriate level of regulation.  But, it is worth underscoring that the failure of the directive to pass reflects the reality that there is a consensus in the EU, as in other regions of the capitalist world, that climate change is a material economic issue; the debate is about the extent to which companies having a substantial footprint in the EU will have to report on climate risks and impact, the time frame for the implementation of the reporting requirements, the effect this may have on suppliers to companies that have to report, and the depth and breadth of the proposed disclosure requirements.  This consensus is shared by major institutional investors who continue to focus on the climate risks faced by companies in which they invest.  These issues thus require monitoring as any changes in the regulations will affect not only European companies, but also U.S. companies with subsidiaries and operations in Europe.  Because climate change and its accompanying economic effects will remain material business risks for all major companies, especially those with substantial international operations, boards and management teams should carefully consider how to navigate these risks and disclose their practices to the market.