EU Omnibus: What it means for Taxonomy reporting

The European Commission has published the first Omnibus package, known as the “Simplification Omnibus,” to reduce the administrative burden of sustainability reporting for companies and boost competitiveness. The proposal aims to cut red tape for corporates through simplification of the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD) and the EU Taxonomy. It also includes simplifications of the EU Carbon Border Adjustment Mechanism (CBAM). 

Overall, the package presents plans for watering down the EU’s sustainability reporting, with a target of reducing the administrative burden by 25% in total and by 35% for SMEs before the end of the mandate. The EU estimates that if adopted in its current form, these first proposals would drive savings of EUR 6.3bn in administrative costs annually.

Changes to EU Taxonomy reporting

Although the main focus of the first Omnibus package has not been on the EU Taxonomy, the classification system and its disclosure requirements are subject to several changes in the Commission's proposal. Below, we focus on some of the implications and the Taxonomy’s usability going forward.

Firstly, given the proposed changes to the CSRD thresholds, mandatory Taxonomy reporting will also be impacted, as the Taxonomy regulation's Article 8 is tied to the CSRD. Companies’ Taxonomy reporting has been expanding since the first reports came out for financial year 2021, and we currently see even voluntary reporting on EU Taxonomy KPIs. This has helped the sustainable finance market through increased data availability, transparency and increasing harmonisation on definitions. The newly proposed thresholds would mean that only companies with over 1,000 employees and more than EUR 450m in revenue would be in scope for mandatory Taxonomy disclosures.

Secondly, the proposal aims to reduce the reporting burden by introducing a materiality threshold of 10%. This means that if the cumulative eligible revenue, CapEx or OpEx is less than 10% of the total revenue, CapEx or OpEx, the company can choose to report these figures as non-material items. The same 10% materiality threshold also applies for financial institutions, however the logic is built differently and Green Asset Ratio calculations are revised. Banks will continue to report on their Green Asset Ratio going forward but will likely face some additional challenges in data collection.

The Commission also communicated that the Taxonomy-aligned OpEx KPI (the portion of a company’s operating expenditure tied to Taxonomy-aligned activities) would be made voluntary. At a high level, we consider this change to be a welcome simplification. OpEx has been a challenging KPI for many corporates. We have seen varying approaches in KPI calculations, making the OpEx KPI difficult to compare even within one sector. However, the Commission's proposal to make the OpEx KPI voluntary includes a requirement for corporates to first determine whether the revenue associated with Taxonomy-eligible OpEx is less than 25% of total revenue. This means that some of the underlying challenges in OpEx and revenue recognition will remain unresolved if the proposal goes through Parliament and the Council in its current form.  

Thirdly, the Commission's proposal includes additional simplification ideas, such as a combined reporting template for corporates on Taxonomy-aligned revenue, CapEx and OpEx, replacing the separate data tables used in previous years. The widely debated “Do No Significant Harm” criteria will also be examined more closely during 2025, with an aim to streamline some of the most challenging requirements. In addition, the Commission has suggested partial-Taxonomy-alignment reporting to further encourage transitional actions. However, the details of this partial-alignment reporting have not yet been fully elaborated. 

Expected impact on data availability

The proposed changes will likely have an impact on Taxonomy data availability. Our small sample of Finnish listed corporates suggests that by applying the proposed changes to CSRD and the Taxonomy's materiality threshold, approximately 20 listed corporates in Finland would fall within the scope of mandatory Taxonomy disclosures, based on reported figures for financial year 2023. 

OMXH listed corpoates – Climate Change Mitigation and Adaptation eligible revenue as a percentage of total revenue

*Eligibility FY21 figures based on ’21 reporting, eligibility FY22 is a sum of alignment and eligibility. No possible restatements included for FY21/FY22. Data may not be complete for previous or years or for FY23 if companies have not yet reported.

Realistically, not all companies falling out of scope would immediately cease disclosing Taxonomy figures. However, given the high volatility in Taxonomy eligibility figures seen in previous years, an alternative approach could have been simplification of the Taxonomy’s Technical Screening Criteria – instead of reducing the scope of companies subject to disclosure requirements. 

Moreover, this approach of reduced scope seems counterintuitive in the light of EU Green Bond Standard coming into use just two months ago. We need to continue to monitor how issuers take these changes into account and how investors react to them.

Finally, however, it is important to understand that these are proposals by Commission and the texts will need to be agreed with the European Parliament and Council before being adopted. There is no certainty to what extent these proposal will be adopted in their current format, and we are expecting to see more details soon.