The conversation (full transcript)
Gabbi: Richard, let’s start at the beginning. What is the omnibus?
Richard: The term “omnibus” is used at EU legislative level to describe a process of looking at multiple pieces of legislation together – examining overlaps and considering how they interact. In itself, it’s nothing new.
In this case, the omnibus is looking at three specific pieces of legislation developed over the last five years, all intended to drive companies towards a more sustainable long-term path. The process is asking whether these laws will have a negative effect on companies’ competitiveness and how they function in the global market.
It’s been proposed on the back of the Draghi report – a report privately commissioned by European Commission President Ursula von der Leyen to examine the challenges Europe may face in its competitive and economic future. One of its recommendations was that certain legislation needed to be streamlined and simplified to allow European companies to compete with other global players.
Gabbi: What are the three pieces of legislation you’re referring to?
Richard: The three pieces of legislation each address a different dimension of corporate sustainability performance.
The first is the Corporate Sustainability Reporting Directive – the CSRD. Companies have been reporting under EU legislation for more than 15 years, but the CSRD was introduced to push companies to disclose much more: their climate, environmental and social risks, not just in terms of financial risk to the company itself, but also the risks and impacts the company has on the real world.
The second is the Corporate Sustainability Due Diligence Directive – CSDDD. Where the CSRD is about disclosure, CSDDD is about action. It mandates that companies identify, assess and begin mitigating human rights and environmental risks in their supply chains. It requires companies to actually engage down their supply chain with those risks. This isn’t entirely new law – it’s built on existing standards from the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises. But the crucial difference is that it makes those standards legally binding, for any company operating in the EU.
The third is the EU Taxonomy – a classification tool that sets out criteria companies must meet to demonstrate that their activities are genuinely sustainable, predominantly in environmental terms: water usage, land usage, climate pathway and so on. Critically, it also requires that companies pursuing progress on one environmental front – say, climate – are not simultaneously causing harm on another, such as recycling or circular economy. It was designed as a tool for companies, but also for financiers and investors to verify that they were genuinely investing in sustainable corporate activity.
Gabbi: Can you zoom in on CSDDD? Why has that particular piece of legislation attracted so much attention?
Richard: CSDDD is the biggest game changer of the three, and that’s because it’s the one that gives a legal behavioural mandate to companies. It means companies can no longer simply report on what they’re doing, or classify certain parts of their business as sustainable. They have to mainstream what we call human rights and environmental due diligence throughout their entire business operations – meaning an active, ongoing process to identify, understand and put in place a mitigation plan to address those risks.
But it goes further than that. For those outside the corporate world – small businesses, suppliers outside Europe, affected communities – CSDDD would also give a legal basis to engage with and challenge companies on their supply chains. That could be through proactive stakeholder engagement, through grievance mechanisms, or potentially through the courts, where companies could be found liable for non-compliance. It really is the single biggest game changer of the three, because of the legal mandate it places on the entire supply chain.
Gabbi: So why isn’t it simply a good thing to have an omnibus process that simplifies and consolidates this legislation?
Richard: To answer that, you have to start from the fact that there’s been no objective evidence or analysis to show that these three pieces of legislation actually overlap in any significant way.
The CSRD is the primary disclosure legislation. CSDDD has no disclosure requirements. The taxonomy has some disclosure requirements, but these don’t overlap with the CSRD either. And the taxonomy’s ‘do no significant harm’ principle – which requires that environmentally positive activity must not infringe on human rights – complements CSDDD rather than duplicating it.
There’s also the question of scope. The CSRD applies to roughly 50,000 to 60,000 companies. CSDDD applies to around 7,000. The taxonomy involves optional uptake, though many do take it up. A company subject to one of these laws isn’t necessarily subject to all three. So they don’t simply overlap – and what gets called ‘simplification’ is, in practice, a reduction in requirements. That might make the legislation easier to apply, but it makes it far less impactful.
Gabbi: How has the corporate world reacted to the omnibus process?
Richard: There’s a strong business association lobby that opposes this legislation. But when you speak to individual companies, many are actually more on board than you might expect.
Progressive businesses understand there will be challenges in implementation – there always are with any new law. But they want to work through those challenges in real time: start implementing, identify the problems as they arise, develop guidance, run consultations, create the space to bring forward genuine issues. At the moment, the problems being raised in opposition to this legislation are entirely theoretical, because none of it has come into force yet. A lot of what’s presented as evidence of harm is, frankly, speculative.
Gabbi: Is there a genuine risk that CSDDD simply won’t happen – that it could be scrapped?
Richard: Yes, there is a genuine risk. The critical point would be if the European Commission proposes significant changes to the main legislative text. If they do that, they essentially reopen the whole text to renegotiation – and the political dynamics at European level are quite different now to what they were a year ago. There is a real possibility that a political majority exists that does not support this law, and reopening the text would give that majority an opening to water it down, delay it, or delete it entirely.
That decision rests with the co-legislators: the elected members of the European Parliament and the member states in the European Council. Depending on the approach the Commission takes in the coming weeks, this legislation could face a very serious challenge.
Gabbi: My final question – and probably the most important one. This law was designed to protect people who are vulnerable in supply chains. What is the impact of all this uncertainty on them?
Richard: The push for this legislation came from the voices of impacted communities outside the European Union. And the way it was designed is fundamentally preventative. The intent was that if companies were mandated to listen to potentially affected communities, the harm should never be realised. That’s idealistic, perhaps – but that is the whole logic of due diligence.
If this had simply been a prohibition tool – no more child labour, no more gender-based abuse, no more environmental degradation – it would have had a very different effect. Companies would simply have withdrawn from high-risk areas. Whereas this legislation deliberately says: you can operate in high-risk areas, indefinitely – but you have to engage with those risks, and part of doing that is genuinely listening to the people who are affected or potentially affected, so that you understand what you’re dealing with.
It’s hard to see exactly how this would have played out in practice, because we’re still far from the application date. But the logic built into the legislation is that affected communities would have a meaningful voice – and that it would be much harder for companies to claim they weren’t aware of a problem.
