1. The last ten years has seen an unprecedented drive to integrate sustainability into public policy, business activities, and personal behaviour and consumption, all driven by increasing evidence of the human impact on our environment as well as a desire to tackle long-standing social issues.

2. At EU level, the signing of the Paris Agreement and the adoption of the UN Sustainable Development Goals led to a wave of new policies being introduced, including the European Green Deal in December 2019, which contained an ambition of becoming the first climate-neutral bloc in the world by 2050 as well as reducing greenhouse gas emissions by 55% by 2030 from 1990 levels. That ambition was enshrined in law pursuant to the EU Climate Law Regulation in 2021 (2021/1119).

3. Laws introduced to implement these and other sustainability-related policies, including the so-called ‘Fit for 55’ suite of legislation, affect all major sectors of the economy, and involve, among other things, imposing higher standards (such as for the energy performance of buildings), setting enhanced targets (such as for the generation of renewable electricity), and internalising the costs of environmentally damaging activities (such as by expanding the scope of, and increasing the costs of compliance with, the EU’s Emissions Trading System, and through the Carbon Border Adjustment Mechanism (“CBAM”)).

4. The development of an EU sustainable finance framework has run in parallel with these initiatives. The genesis of that framework was a report delivered in 2018 by a High-Level Expert Group on Sustainable Finance which in turn formed the basis of the action plan on sustainable finance adopted by the European Commission in March 2018. That action plan has underpinned Commission policy on sustainable finance over the past number of years and, together with its successor strategy published in 2021, has led to the adoption of landmark pieces of legislation.

5. These include:
• the Sustainable Finance Disclosure Regulation (“SFDR”) which came into effect in 2020 and imposes significant firm-level disclosures on asset managers and other financial market participants and advisers as well as requiring specific pre-contractual and periodic disclosure requirements to be made with respect to financial products (such as AIFs and UCITS).
• the EU Taxonomy Regulation which creates a unified EU classification system to define what it means to carry on an environmentally sustainable (i.e. green) economic activity (the “EU Taxonomy”) by reference to six specified environmental objectives and detailed technical criteria developed by the European Commission.
• the Corporate Sustainability Reporting Directive (“CSRD”) which introduced enhanced mandatory corporate sustainability reporting obligations for companies, replacing existing rules on non-financial reporting that had been introduced by the Non-Financial Reporting Directive (“NFRD”).

6. Other significant pieces of legislation included the introduction of a EU Green Bond Standard which introduced a new voluntary “European green bond” or “EuGB” label, the Corporate Sustainability Due Diligence Directive (“CSDDD”) which sets out new obligations for in-scope companies to identify and, where necessary, prevent, end, or mitigate the adverse impacts of their activities on human rights and the environment, as well as other targeted legislation aimed at credit institutions, benchmark administrators, investment firms, ESG ratings providers, EU regulated funds, insurance companies, and other financial institutions, to require, amongst other things, enhanced ESG-related disclosures and risk-management.

7. This supernova of regulation, creating an entire regulatory galaxy where none had existed before, was unprecedented. Although concerns were raised at the time about regulatory overload and the practical difficulties being encountered in implementing the new requirements, particularly in collecting and refining information to populate the extraordinary number of data points, it was argued that the rapid pace of adoption was needed in order to rewire the financial system and unlock capital to achieve the ambitious climate and other sustainability targets adopted by the EU, with these targets themselves recognising that time is of the essence in addressing issues such as climate change and biodiversity loss.

A Changing Policy Landscape
8. However, over the past 12-18 months, cost of living pressures, geopolitical tensions arising from the war in Ukraine as well as a broader political backlash to the volume and nature of new regulation, have seen growing resistance to aspects of the EU’s sustainability agenda. One of the first signs of this pushback was in early 2024 where CSDDD, having been provisionally agreed by the EU co-legislators following a lengthy trilogue process, was subsequently significantly watered-down when certain Member States (in a highly unusual move) failed to sign-off on the agreed text and looked for further concessions. This was followed later in 2024 by a postponement of application of an EU deforestation law by one year where that law had been due to come into effect from 30 December 2024.

9. Mario Draghi, in his influential report released in September 2024 (the “Draghi Report”), identified sustainability reporting and due diligence as a major source of regulatory burden, which was heightened by “a lack of guidance to facilitate the application of complex rules and to clarify the interaction between various pieces of legislation”. The Draghi Report highlighted the major compliance costs associated with that regulatory burden and recommended reducing it as one of the key building blocks of a new industrial strategy for the EU. This was followed by the ‘Budapest Declaration’ on 8 November 2024 where Ursula von der Leyen announced an omnibus package aimed at simplifying ESG-related regulations and eliminating overlaps and contradictions in sustainability reporting requirements, and committed to ‘drastically reducing administrative, regulatory and reporting burdens, in particular for SMEs’.

The EU Drive towards Simplification
10. On 26 February 2025, the EU Commission published a package of proposals aimed at simplifying EU rules, boosting competitiveness, and unlocking additional investment capacity (the “Omnibus Proposals”). The principal changes proposed by the Omnibus Proposals to the sustainability reporting regime introduced by CSRD include (i) an initial deferral of reporting obligations for large companies and SMEs by two years (referred to as the ‘stop the clock’ proposal); (ii) ultimately, a change in scope of the CSRD reporting requirements so that they would only apply to large companies or groups having 1,000 employees. The Omnibus Proposals also include proposals to postpone the application of CSDDD by one year and simplifications to the due diligence requirements, as well as certain amendments to CBAM. This postponement of obligations is designed to give time to the co-legislators to agree the Commission’s substantive proposals to amend CSRD and CSDDD and to allow Member States and affected businesses time to take account of the proposed changes to the EU legislative position.

11. The Omnibus Proposals, if implemented, are hugely significant. The Commission estimates that the number of companies in scope will be reduced by about 80%, and that the combined cost savings from the proposed changes amount to €4.4 billion per year.

12. The EU co-legislators, recognising the need to give certainty to businesses so that they can plan accordingly, are moving at speed on the proposals, particularly with respect to deferral of reporting obligations. On 3 April 2025, the European Parliament adopted, at first reading, the EU Commission’s ‘stop the clock’ proposal with the EU Council expected to formally approve the proposal shortly, having previously endorsed it without amendment on 26 March 2025. As currently drafted, the proposed Directive will enter into force on the day following its publication in the Official Journal of the European Union.

13. One of the key benefits of the accelerated timetable at an EU level, is that it will give Member States (including Ireland) plenty of time to transpose the Directive into national law. That certainty will be welcomed by Irish and EU businesses, especially those that would otherwise be in scope of CSRD sustainability reporting requirements at the end of this year.

14. The Minister for Enterprise, Tourism and Employment (Peter Burke) has indicated in a recent press release that he will be “…focused on quickly implementing the EU’s ‘Stop the Clock’ proposal…” Encouragingly, that press release also states: “Minister Burke will shortly be amending the existing Irish legislation governing CSRD to further clarify and reduce the scope of companies covered…”.

15. This may be in response to a number of concerns raised by McCann FitzGerald LLP (along with other leading law firms and other bodies) in relation to a potential lack of alignment between the scope of CSRD and the Irish transposition measures, particularly with respect to the potential extension of scope to companies, including those in the financial services sector, that did not otherwise meet the relevant size thresholds applicable to large companies.

16. Companies in advanced stages of preparing for regulations impacted by the Omnibus Proposals, particularly CSRD, will now have to consider the proposed amendments, including whether they will remain in-scope of the reporting requirements if the Omnibus Proposals are enacted as currently drafted. Many organisations have invested significant time and effort and incurred substantial costs in preparing for CSRD. Frustration has been expressed at the changing compliance landscape as well as criticism from stakeholders at the perceived diminishment of the EU Commission’s sustainability ambitions. However, the EU Commission’s aim to reduce and simplify the reporting burden and to foster a more business friendly environment is likely to be welcomed by many companies.