Environmental, social and governance | UK Regulatory Outlook February 2025

The EU 'Omnibus' package – what does this mean for the future of ESG reporting? 

The European Commission has unveiled its first omnibus package, proposing significant amendments to the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD). This initiative aims to reduce the regulatory burden on businesses and enhance the EU's global competitiveness. 

Key changes under the CSRD include raising the threshold for reporting to companies with more than 1,000 employees and €450 million turnover, removing around 80% of companies from scope. Non-EU companies generating €450 million revenue in the EU will also need to comply (previously the level was €150 million). Additionally, the requirement for information requests along the value chain for those stakeholders who do not fall under CSRD has been removed, and there will be no mandatory sustainability reporting for listed SMEs. The EU will issue guidance on assurance requirements before setting limited assurance standards, and double materiality remains despite speculation it could be scrapped. Application of the CSRD for those companies required to report as of 2026 or 2027 has also been delayed by two years until 2028. 

Under the CSDDD, the transposition deadline for Member States has been extended to 26 July 2027, with the first application delayed to 26 July 2028 for larger companies. Most notably, the proposal narrows the meaning of value chain to reduce where due diligence needs to be conducted under CSDDD "to the companies’ own operations, those of their subsidiaries and, where related to their chains of activities, those of their direct business partners". This includes a carve out of considering suppliers with less than 500 employees. It also looks to amend compliance monitoring to every five years instead of annually. With regard to transition plans, the proposal notes that companies must adopt but not necessarily implement net zero transition plans, and there is no need to terminate supply chain relationships for underperformance on sustainability. The proposal also removes the specific penalty cap of 5% of net worldwide turnover, with guidelines on penalties to be produced by Member States and the Commission.

Changes to the Taxonomy framework include voluntary reporting for companies within the new CSRD scope and simplified reporting templates, reducing data points by almost 70%. 

In terms of next steps, the proposals put forward are in draft form and the changes need to be formally agreed by both the European Parliament and Council before they can become law. Amendments may be made to the proposal due to the controversy of the changes being put forward as this is a major row back from what the original directives aimed to do.

We expect this omnibus to be a highly debated piece of legislation and businesses should keep abreast of the final conclusions to understand the impact of any changes on their operations. See our Insight for more. 

Competitiveness Compass for the EU aims to simplify ESG regulation  

The European Commission published a communication on a "competitiveness compass" for the EU on 5 February. It sets out proposals for the next five years of what the EU needs to do to "regain its competitiveness and secure its prosperity". One of the main areas of focus is to simplify the regulatory environment in order to reduce burden and favour speed and flexibility. For an overview of the flagship actions, see the Commission's factsheet.  

Some of the main points from the compass on ESG and sustainability are: 

• Simplification omnibus packages: The first package was published on 26 February in regards to sustainable finance reporting, sustainability due diligence and taxonomy. The Commission states that it will "notably address the trickle-down effect to prevent smaller companies along the supply chains from being subjected in practice to excessive reporting requests that were never intended by the legislators."
• New definition of small mid-caps: The Commission will also introduce a new definition of small mid-caps for those companies bigger than small to medium-sized enterprises (SMEs) but smaller than large companies which it says will mean "thousands of companies in the EU will benefit from tailored regulatory simplification in the same spirit as SMEs." This is to be introduced in second quarter of 2025.
• Review of the CBAM: In 2025, it will explore extending the scope of the CBAM (Carbon Border Adjustment Mechanism) and its measures to address export impacts. It will apply the new definition of small mid-caps to reduce the number of smaller companies being caught.
• Revision of the REACH Regulation: The regulation on REACH (registration, evaluation, authorisation and restriction of chemicals) aims to simplify and expedite decision-making on important hazards.
• Encouraging demand for low-carbon products: The aim is to achieve this through benchmarking, labelling, mandates, public procurement preferences and financial incentives.
• Chemicals Industry Package: To be published at the end of 2025, focusing on industry competitiveness, human health, environmental protection and critical chemical supply.
• Circular Economy Act proposal: Planned for 2026, the proposal aims to promote recycling, substitution of virgin materials, and reduction of landfilling and incineration.
• Prohibition of the destruction of certain consumer products: The exploration of effective prohibition and related transparency obligation will focus on re-use or recycling of counterfeit goods.
• Platform for joint purchase of critical raw materials: This will aim to identify EU industry needs, aggregate demand, and coordinate joint purchases. 

The Commission has reiterated its simplification agenda in its work programme 2025. This illustrates that the EU is poised to transform significantly the ESG regulatory landscape: it is crucial for businesses to stay informed and understand how these changes will impact them. See our Insight for more.

FCA provide update on extending the SDR regime to Portfolio Management

Last year the Financial Conduct Authority (FCA) published its Consultation Paper on 23 April that sets out its updated proposals to extend the Sustainability Disclosure Requirements (SDR) and investment labels regime to portfolio management. 

This month the FCA has provided an update: it is continuing to reflect on the feedback and no longer intends to publish a Policy Statement in Q2 2025, but will provide further information in due course.

Extending the UK Emissions Trading Scheme cap beyond 2030

Please see Environment.  

Carbon capture decarbonisation readiness regulations 

Please see Environment.  

Joint Committee on Human Rights run inquiry into forced labour in global supply chains 

Please see Modern slavery.  

Independent Anti-Slavery Commissioner Strategic Plan 2024-2026 published 

Please see Modern slavery.

Packaging and Packaging Waste Regulations comes into force  

Please see Products. 

Please also see our latest international ESG Knowledge Update, for a round-up of legal, regulatory and market news.