All that glitters is not gold: The EU Omnibus paradox
In an effort to boost the competitiveness of European companies and simplify a regulatory system often seen as burdensome, the European Commission unveiled the so-called EU Omnibus Package last February. Presented as a breath of fresh air for businesses, the package aims to reduce sustainability reporting requirements and simplify directives like the EU Corporate Sustainability Due Diligence Directive (CSDDD).
Reducing ESG due diligence to tier 1 – unless there is ‘plausible information’
One of the proposed changes to the CSDDD suggests that companies should limit their ESG due diligence obligations to the first layer of their supply chain network, called ‘tier 1’ suppliers—unless there is plausible information, indicating potential harm deeper within the value chain.
At first glance, this appears to offer a simpler, more manageable approach. But does it actually deliver on that promise of simplification? Or could it, in practice, require more from companies, just in a far less structured and predictable way? In other words, could this end up costing companies and their suppliers even more?
A closer look suggests that the answer may be the latter. To comply, companies would need to monitor all tier 1 suppliers indiscriminately, regardless of their actual risks. They should also remain on constant alert for potential issues that could arise beyond that first tier.
The vague standard of ‘plausible information’ would leave companies in a permanent state of reaction, locked in a cycle of crisis management—putting out fires instead of preventing them. This undermines any opportunity for strategic focus and efficient resource allocation. Rather than reducing administrative burden, this model risks creating more work, not less.
By contrast, a genuine risk-based approach would be far more effective. It would put companies in control, allowing them to assess where the greatest risks lie and direct their efforts accordingly.
Capping the information companies can request
Now let us examine the proposed EU Corporate Sustainability Reporting Directive (CSRD) “value chain cap”. This measure is meant to alleviate the burden on small and medium-size enterprises. The EU Omnibus proposes limiting the amount of information that reporting companies can request from their suppliers with fewer than 1,000 employees. What is the reference point for this limitation? The Voluntary Standard for Small and Medium-size Enterprises (so-called VSME standard) developed by EFRAG, an advisory group that helps the EU develop corporate reporting standards.
At first glance, limiting what can be requested from suppliers might seem like a reasonable approach. But is the VSME standard the right vehicle for providing the much-needed relief from customer demands? And will it still allow access to relevant, decision-critical information? After all, the VSME standard was never intended to become a shield for companies below the 1,000-employee threshold, nor a barrier to transparency across the value chain.
To assess whether this approach truly delivers on the promise of simplification without undermining ESG due diligence, let us consider why a company might ask its supplier if and how it reuses water at its facilities.
This kind of inquiry is not a matter of excessive detail or administrative overreach. It is a fundamental part of understanding key indicators of responsible resource use, for instance, whether suppliers operate closed-loop systems. Especially in regions already grappling with water stress, this kind of information is not a luxury, it is a necessity.
So, what would be the cost of not having access to such information? Simply put, companies would lose the ability to recognise and reinforce good practices where they already exist, or to intervene where improvements are needed. Without these insights, they simply cannot provide meaningful support to their suppliers, nor can they drive progress toward more sustainable outcomes across the value chain.
Risk-based ESG due diligence is not the problem – it’s the solution
Far from being a burden, risk-based ESG due diligence is what makes sustainability efforts both manageable and meaningful. It allows companies to tailor their efforts based on actual risk ensuring that resources are used where they matter the most.
Maintaining alignment with international standards reinforces this approach: helping companies focus their efforts without compromising on impact. Diverging from these standards, on the other hand, risks introducing complexity and undermining effectiveness.
The EU Omnibus Package presents a genuine opportunity to streamline and improve. But that opportunity should be directed at clarifying provisions and improving coherence, not weakening the core principles that make ESG due diligence meaningful.
