Climate and Energy: EU Policy and Regulation Update

Introducing Cleary’s Climate and Energy EU Policy and Regulation Update, our enhanced bi-monthly newsletter, replacing our Climate and the Financial Sector Newsletter and covering key developments in climate-related regulation, litigation, and enforcement across Europe.

As policy and regulatory landscapes evolve, this publication will provide insights to navigating emerging risks and opportunities in the energy transition.

Special focus on Sustainability Omnibus Package

European Union

26 February 2025 – European Commission publishes the Sustainability Omnibus Package

The Sustainability Omnibus Package, published on 26 February 2025, is a package of six legislative texts aimed at streamlining the EU’s ESG framework through substantial simplification of existing legislation.

The EU Commission has set a target to reduce administrative burdens by at least 25% (35% for SMEs) by the end of the mandate in 2029.

1. Proposal for a Directive to postpone the application of the CSRD requirements and the transposition deadline and first wave application of the CS3D (Stop-the-Clock Directive) [available here]
The Stop-the-Clock Directive proposes (i) to postpone by two years the application of the CSRD to companies that were due to start reporting in 2026 (for financial years 2025 and 2027) and (ii) to postpone by one year the transposition deadline and the date of application of the CS3D for the first wave of in-scope companies.

2. Proposal for a Directive amending Directive (EU) 2022/2464 (CSRD) and Directive (EU) 2024/1760 (CS3D) [available here]

The main changes to the CSRD include the following:

• Scope reduction: The Proposal would increase the “number of employees” criteria from 250 to 1000 employees for EU and EU-listed companies and the net EU turnover for third-country ultimate parents from 150 million to 450 million euros;
• Revision of the ESRS [the ESRS are available here]: The Proposal announces the revision of the ESRS to significantly reduce the number of datapoints and to clarify the existing areas of uncertainty;
• Deletion of the possibility for the EU Commission to adopt sector-specific reporting standards;
• Adoption of the limited assurance standard: The Proposal removes the possibility for the EU Commission to move from a limited assurance standard to a reasonable assurance standard, thereby providing clarity that there will be no future reinforcement of assurance requirements;
• New standard for voluntary use: The Proposal empowers the EU Commission to adopt, within 4 months after the entry into force of the Directive, sustainability reporting standards for voluntary use by undertakings not subject to mandatory CSRD reporting, based on the Voluntary reporting standard for SMEs developed by EFRAG [more information on this standard is available here];
• Value Chain Cap: The Proposal provides that in-scope undertakings should not seek to obtain from undertakings with less than 1000 employees information that goes beyond the information specified in the standards for voluntary use;
• Optional taxonomy reporting for certain undertakings: The Proposal provides that reporting under Article 8 of the Taxonomy Regulation (Regulation (EU) 2020/852) will no longer be mandatory for in-scope undertakings with a net turnover not exceeding EUR 450 million, if they do not claim taxonomy alignment. If these companies claim alignment or partial alignment, they will have to provide fewer KPIs.

The main changes to the CS3D include the following:

• Limitation of due diligence measures to the companies’ own operations, those of their subsidiaries and, where related to their chains of activities, those of their direct business partners: The Proposal removes the obligation to carry out systematic in-depth assessments of adverse impacts on indirect business partners. Instead, it requires an in-depth assessment only when the undertaking has plausible information suggesting that adverse impacts have arisen or are likely to arise at the level of an indirect business partner’s operations;
• Modification of the penalties provisions: The Proposal removes the requirement for the fine to be commensurate to the company’s net worldwide turnover and the ‘minimum cap’ for fines, but introduces a mandate for the EU Commission to set guidelines for administrative penalties;
• Deferring to national laws on the civil liability regime: The Proposal removes the specific EU-wide civil liability regime and defers to Member States regimes. However, the right to “full compensation” is maintained;
• Deletion of the review clause on financial services: The Proposal removes the possibility to extend the due diligence requirements in respect of financial services;
• Narrowing down of certain obligations: The Proposal narrows down certain obligations, in part to ensure alignment with the CSRD:
  • narrowing the definition of stakeholders and stakeholder engagement
  • removing the obligation to terminate a business relationship as a last resort
  • removing the obligation to “put into effect” climate transition plans (while requiring that the plans include “implementing actions”)
  • extending the periodic assessment period of the adequacy and effectiveness of due diligence measures from 1 to 5 years,
  • limiting the possibility to request information from undertakings with fewer than 500 employees;
• Application of maximum harmonisation to core due diligence obligations to ensure a better level playing field;
• Publication of the EU Commission first set of general implementing guidelines advanced to 26 July 2026.

3. Consultation on a draft delegated regulation amending the various delegated acts adopted under Taxonomy Regulation [available here]
The EU Commission is consulting until 26 March 2025 on a draft delegated regulation proposing amendments to the Taxonomy Disclosures Delegated Act (Delegated Regulation (EU) 2021/2178), including:

• Simplification of the reporting templates, with a reported 66% reduction in the number of data points for non-financial undertakings and an 89% reduction for credit institutions;
• Introduction of an exemption from the requirement to assess the Taxonomy-eligibility and alignment of their economic activities with the relevant technical screening criteria if they are not financially material to their business (the “10% de minimis threshold”);
• Exclusion from the denominator of the applicable KPIs, for financial undertakings, of their exposures to companies that would no longer be required to publish sustainability reports under the CSRD (green asset ratio);

The consultation also covers amendments to the Climate Taxonomy Delegated Act (Delegated Regulation (EU) 2021/2139) and the Environment Taxonomy Delegated Act (Delegated Regulation (EU) 2023/2486) to seek feedback on two alternative options to simplify the criteria for the DNSH for pollution prevention and control in relation to the use and presence of chemicals that apply to all economic sectors under the EU taxonomy.

The Sustainability Omnibus Package also includes (i) a Proposal for a Regulation amending the Regulation (EU) 2021/523 (InvestEu Regulation) [available here] and (ii) a Proposal for a Regulation (EU) 2023/956 (Carbon Border Adjustment Mechanism Regulation or CBAM Regulation) [available here and here].

The EU Commission has published a set of questions and answers on the Sustainability Omnibus Proposal [available here].

 

The Sustainability Omnibus Package builds on a range of EU and national level positions aiming to reduce administrative and reporting burdens, including the following:

European Union

29 January 2025 – European Commission publishes communication on EU competitiveness compass

The European Commission published a communication on a Competitiveness Compass for the EU [available here], which sets the Commission’s plans for certain environmental and sustainability measures.

These include financial incentives and other measures to encourage demand for low-carbon products, as well as tailored action plans for energy intensive sectors (including a steel and metals action plan and a chemicals industry package in 2025).

The Commission also plans for a review of the EU carbon border adjustment mechanism (CBAM) in 2025, as to extend its scope to other sectors and downstream products, and simplify it for smaller businesses. Other next steps include a proposal for a Circular Economy Act in 2026, a proposal to amend the EU Climate Law in 2025, and the publication of a European climate adaptation plan in 2026

The communication also notes that the Commission will be launching “Simplification Omnibus packages” on 26 February 2025. This is in particular aimed at simplifying existing legislation on sustainable finance reporting, due diligence and taxonomy. The Commission says that it plans to ensure better alignment of the requirements with the needs of investors, and to set obligations proportionate to the scale of activities of different companies. In particular it will introduce changes to prevent smaller companies in supply chains from being required to meet “excessive reporting requests that were never intended by the legislators”.

 

17 January 2025 – EPP publishes a statement recommending a reduction in administrative burdens on companies

The European People’s Party (EPP) published a statement [available here] emphasizing the need to improve the competitiveness of the EU economy by reducing over-regulation and unnecessary administrative procedures. In particular, the EPP stresses that the implementation of Directive (EU) 2022/2464 (CSRD) and Directive (EU) 2024/1760 (CSDDD or CS3D), as well as related legislation including the the Regulation (EU) 2020/852 (Taxonomy Regulation) and the Carbon Border Adjustment Mechanism, should be put on hold for at least two years. It also states that during this period, an omnibus regulation should limit the scope of these laws to the largest companies with more than 1,000 employees, eliminate the indirect impact on SMEs, align legislative overlaps that currently lead to double reporting, and significantly reduce the reporting obligations for large companies by at least 50%.

 

22 January 2025 – BusinessEurope publishes 68 proposals for the reduction of regulatory burden in 2025

The Confederation of European Business (BusinessEurope) has published a report [available here] identifying 68 of the most pressing burdens in 11 areas and proposing ways to tackle them in 2025. According to the report, regulatory burdens are a major concern for European companies and are seen as a barrier to investment by more than 60% of EU companies. The report highlights that the most pressing burdens are concentrated in regulations on energy and climate, the circular economy, consumer policy, sustainable finance and company law, taxation, financial reporting, international value chains and trade, the digital economy, employment and social policy, food law and financial services. The report calls for an overall reduction target to be set, with a dedicated programme to achieve it within clear deadlines, and suggests improvements for each of the burdens identified and described in the report.

 

4 February 2025 – IIGCC, Eurosif and PRI publish joint statement on Omnibus Legislation

The Institutional Investors Group on Climate Change (IIGCC), the European Sustainable Investment Forum (Eurosif) and the Principles for Responsible Investment (PRI), supported by more than 200 investors and other financial sector stakeholders, call on the European Commission to preserve the integrity and ambition of the EU framework for sustainable finance [statement available here]. The signatories stress that timely access to high quality and comparable reporting is a prerequisite for informing and guiding their investment decisions. While supporting the overall objective of simplifying and improving the coherence of the EU sustainable finance framework, they argue that a more effective approach would be to focus on streamlining technical standards and providing clear implementation guidance. In particular, they call on the European Commission to: (i) preserve the principles, aims and core substance of the CSRD, the CSDDD and the Taxonomy Regulation; (ii) streamline the requirements and address inconsistencies and implementation issues in the technical standards; (iii) facilitate the implementation of these rules by providing user-friendly guidance to companies; and (iv) ensure interoperability between the ESRS and relevant international sectoral standards in order to reduce the reporting burden.

 

7 February 2025 – ESMA contributes to simplification and burden reduction

The European Securities and Markets Authority (ESMA) supports the European Commission’s objective to simplify and reduce the reporting burdens in the financial sector [press release is available here]. ESMA states that it will look at ways to ensure that measures imposed on market participants are proportionate across its entire remit, including data, policy and supervision. Initial areas of focus are transparency and volume cap regimes and transaction reporting with Regulation (EU) 2024/791 of 28 February 2024 (MiFIR Review), and digitalisation of sustainability and financial disclosures with ongoing consultations on proposals to digitalise sustainability and financial disclosures [please refer to our newsletter of 26 December 2024, available here, for more information on the ongoing consultation].

 

France

20 January 2025 – French authorities propose measures for the European regulatory and administrative simplification agenda

The French authorities called on the European Commission to launch a new, highly ambitious simplification agenda based on “a massive regulatory pause”, to be launched at the start of the new term of office, to send a positive signal to European businesses [the statement available here in French]. The French authorities’ statement highlights 19 proposals, including amendments to the CSRD, the CSDDD and the Taxonomy Regulation. In particular, the French authorities support:

• an indefinite postponement of the entry into force of the CSDDD in order to provide the time needed to improve the Directive;
• the urgent adoption of various simplifications in relation to the CSRD or, as a subsidiary option, a two-year postponement of the entry into force of the provisions of the CSRD. Proposed simplifications include drastically reducing the number of indicators and focusing them on climate objectives, permanently allowing medium-sized companies to use the European Sustainability Reporting Standards (ESRS) intended for SMEs, and introducing a principle of capping reporting in the supply chain of large companies;
• targeted changes to the delegated acts related to the Taxonomy Regulation, including the Green Asset Ratio for credit institutions, which should be reviewed to ensure harmonization of the numerator and denominator.

 

17 January 2025 – French Private Companies Association publishes positions supporting the EU’s upcoming Omnibus proposal

The French Association française des entreprises privées (AFEP) has published two positions supporting the reduction of the administrative and reporting burden, in line with the European Commission’s announcements towards an Omnibus proposal.

• The first position [available here] takes note of the CSRD, CS3D and Taxonomy’s impact on regulatory requirements, and proposes a series of modifications with the aim of simplifying said requirements, by amending regulations, making certain requirements voluntary, and postponing the application of CS3D.
• The second position contains proposals on the reduction of the administrative burden regarding other regulations as, for example, emission trading scheme or tax reports [available here]. The AEFP reports emphasizes the need for companies not to disclose any sensible information and supports the preservation of business secrecy.

The AFEP stated that large French companies strongly support the European Commission’s commitment to reduce the reporting burden by at least 25% and present an Omnibus proposal. The AFEP is of the view that European companies must not be penalized by disproportionate requirements and standards that others would not have to bear. In light of this position, the AFEP considers that “A critical threshold has  undeniably been crossed between CSRD, CS3D and the EU Taxonomy.”

 

6 January 2025 – French Collège des Directeurs du Développement Durable sends letter to the European Commission on the Omnibus proposal

The French Collège des Directeurs du Développement Durable (C3D), a French organization representing over 400 Chief Sustainability Officers of French companies, has sent a letter to the European Commission [available here] supporting the original intent of the co-legislators and the broader Green Deal agenda, while recommending a gradual implementation that preserves the substance of current legislation and allows companies to focus on strategic priorities. The C3D also highlights that sustainability regulations ensure a level playing field and strengthen European sovereignty, and that many companies have already made significant progress in adapting to these frameworks. Finally, the C3D makes recommendations on the Omnibus proposal to improve the clarity and effectiveness of the CSRD, CSDDD and Environmental Taxonomy Regulation without compromising their strategic objectives.

 

Germany

In Germany, the Christian Democratic Union of Germany, presented a 15-point plan that, among other things, calls for the abolition of the German supply chain regulation.

[See further here, here, here and here – German only.]