The sustainable reporting roll-back under the Omnibus package could depress demand for RES-E GOs in the long run as 40,000 companies could benefit from deregulation.
The Omnibus package was promised by Ursula von der Leyen at the start of her second term, in the name of administrative simplification. In response to the Draghi report, three regulations forming the pillars of sustainability reporting in the EU were pinpointed as “administrative burdens” for the industry: the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD) and the EU Taxonomy of sustainable activities. The Carbon Adjustment Border Mechanism (CBAM) was also added to the list. The post-covid recovery, the energy crisis, high inflationary pressures, rising trade tensions and “increased concern from businesses about the regulatory burden imposed on them” are cited as factors that call for a streamlining of reporting obligations. As a result, the CSRD could see its coverage reduced to 10,000 companies, representing just 20 % of the original. Such regulatory backpedalling could transform the EU sustainability framework and lessen the bullish impact by potentially reducing the expected corporate GO demand.
As the Commission formally published its proposal on 26 February 2025, it has yet to go through the ordinary legislative process, whereby both the Council and the Parliament will shape the final regulation by issuing their negotiating mandate first and convening during the interinstitutional meetings to agree on the final text.
In the Parliament, the Omnibus risks running into opposition from left-wing groups and some centrists. On 20 February 2025, the S&D group and the Spanish government urged Ursula von der Leyen not to weaken the regulation, while Renew also expressed its concerns in comments to the journalists. Nonetheless, given the rightist lean of the European Parliament (parties right of the political centre secured 375 seats out of 720 in the elections last year), it is unlikely that the anti-deregulatory push will succeed, however, some concessions are likely to be negotiated.
By proposing significant rollbacks, the Commission might be able to appeal to the general public, while at the same time playing a hidden card as a negotiation strategy. Specifically, by lowering its expectations, the debate might shift to meet stakeholders somewhere in the middle.
The CSRD has been in effect since 2023, with large companies (those with over 500 employees) required to submit their first reports in 2025.
The main change to the CSRD concerns its scope. The Omnibus package would limit the CSRD application scope to align with the CSDDD, significantly reducing the original coverage. Currently applied to all companies with more than 250 employees due to submit their first reports in 2026, it would now only cover very large companies – those with more than 1,000 employees and a net turnover of EUR 450 million. Listed SMEs that would start their sustainability reporting in 2027 are also excluded.
Consequently, this could shrink the pool of EU companies that need to carry out sustainability reporting from 50,000 to 10,000, even narrower than the scope of the CSRD’s predecessor, the Non-Financial Reporting Directive (NFRD) introduced in 2014. As a result, businesses with 500 to 1,000 employees that have been reporting under the NFRD since 2018 would no longer be required to do so.
The limiting requirements echo suggestions earlier put forward by the European People’s Party.
The CSDDD, in force since the summer of 2024 but yet to be transposed by Member States, builds on the CSRD and introduces tighter sustainability reporting for select undertakings. It imposes a corporate duty to conduct due diligence on human rights and environmental impacts across a company’s operations, subsidiaries, and value chains. The application deadline for the first subset of companies is suggested to be deferred to 26 July 2028 (vs. the current deadline of 26 July 2027) so that in-scope companies have two years to prepare.
As part of the Omnibus package, the following changes to the CSDDD are introduced:
The Commission intends to adopt a delegated act to revise the first set of ESRS “as soon as possible” and “at the latest six months after the entry into force” of the Omnibus package. Such ESRS makeover will reduce mandatory data points by:
The legislative provisions that currently apply will continue to do so until the new regulations are adopted. In real terms, this could mean that smaller companies below the proposed threshold would need to file CSRD-compliant reports until such time that the Omnibus package enters into force.
To avoid this, the Commission will file a separate proposal to postpone by two years the entry into application of the reporting requirements for the second and third-wave companies, shifting the timeline from 2026 and 2027-2029 respectively, to 2028 and 2029-2031 earliest.
Long-term, this could have a dampening effect on GO demand if the Omnibus package is adopted as is. By removing 42,500 European companies from the application scope, legislation-induced corporate GO demand that would have otherwise entered the market, would not materialise.
In the short run, the arrival of the additional GO demand on the market could be postponed. Further, large companies already falling under the first CSRD-reporting wave could adopt less ambitious decarbonisation strategies if they know that they could be excluded by dint of upper company size and turnover thresholds. For instance, under the CSRD, while the market-based method is to be used for Scope 2 GHG emissions disclosure, companies could rely on the residual mix as opposed to GO procurement or PPAs.
They can also employ the location-based method to set carbon reduction targets. Some CSRD-compliant companies are already doing this: Veyt will follow up with an analysis providing an overview of the first batch of CSRD reports and the current practices on the market for sustainability reporting as it pertains to the GO market.
Bullish demand expectations stemming from the current legislation may have contributed to the contango seen on the OTC market since mid-2023, whereby future vintages trade at higher prices than current year contracts, however fundamental factors could have played a larger role. higher prices than current year contracts, however, fundamental factors could have played a larger role. While we do not expect a complete reversal of the contango as other policies (e.g. RFNBO act) are still expected to boost GO demand, some downward readjustment of future price expectations may occur.
The RES-E GO prices followed a persistent bearish trend until week 6; however, prices slightly rebounded in week 8 as indicated in our weekly report. When the news hits the market, we could expect some forward contract price corrections to reflect a somewhat bearish sentiment, whereas current year contracts could gain in liquidity ahead of the general disclosure deadline on 31 March 2025.
For the PPA market, the scope narrowing could also constrict corporate demand, however, this may be offset by the proposals in the Clean Industrial Deal. It will see the European Investment Bank pilot a scheme to counter-guarantee part of corporate PPAs, targeting small and medium-sized offtakers as well as energy-intensive industries. The guarantee would essentially de-risk and protect the offtaker side of PPA. As a result, this measure should boost the PPA uptake in Europe.
Nonetheless, to soften the deregulatory blow, the Omnibus package accommodates the adoption of a delegated act to provide for sustainability reporting standards for voluntary use by companies that do not fall under the scope of the sustainability regulation based on the VSME standard developed by EFRAG.
While well-intended, it could contribute to further proliferation and fragmentation of sustainability standards, creating different practices across the markets.
Veyt specialises in data, analysis, and insights for all significant low-carbon markets and renewable energy.
