EU’s Omnibus package heightens legal risk for companies

Legal scholars are raising the alarm about the European Union’s (EU) decision to weaken its corporate sustainability disclosure, saying that it could well expose companies to climate-related lawsuits.

Thirty-one academics from University of Oxford, University of Cambridge, Utrecht University and other institutions signed on to a letter warning that the EU’s February 2025 Omnibus proposal to scale back the requirements and guidance of the Article 22 Corporate Sustainability Due Diligence Directive (CSDDD) is sure to cause chaos. Specifically, the signees believe that lighter reporting obligations for emissions and more variance in the requirements among EU member states, can only increase reporting mistakes — and, in turn, climate-related litigation.

“If you do not have Article 22 CSDDD, then it is quite unclear what is being expected of companies,” said Associate Professor Thom Wexter of Oxford’s Faculty of Law. “And if [EU member states] don’t capture corporate emissions within their legislative framework, they’ll miss a huge part of their economy.”

This is what organizations in the EU — or doing business within it — need to know about the proposal.

Context and clarification

In the past couple of years, the EU has introduced a pair of complementary regulations to standardize sustainability reporting for corporations:

• CSRD, or Corporate Sustainability Reporting Directive, which requires companies to disclose Scope 1, 2 and 3 data; and
• CSDDD, which assesses the impact and inherent risk posed to humanity and the environment by corporate operations and supply chains.

Prior to the Omnibus proposal, CSDDD required companies to “put into effect” a climate transition plan. But now that language will be removed, and that change, the experts argued, falls short of mandating implementation.

Industry appears to favor both CSRD and CSDDD in their original forms. A survey conducted by professional association WeAreEurope found that only 25 percent of responding companies approve of the changes proposed in the Omnibus package.

Obligations will not be met

The European Court of Human Rights ruled in 2024 that all 27 EU member states are obligated to “adopt, and to effectively apply in practice, regulations and measures capable of mitigating the existing and potentially irreversible, future effects of climate change.” But, the letter writers noted, emissions from the largest corporations in each country “are so significant that they are bound to exceed their territorial emissions budgets.”

More to the point, they predict that the differing expectations set by the law of each country and the EU will open up corporations to lawsuits should they fail to comply with either.

Internal market fragmentation

An international human rights case, Milieudefensie et al v. Shell, was the impetus for the creation of CSDDD. In November 2024, the Hague Court of Appeals ruled that Shell was obligated to reduce its emissions. Without any form of guidance, though, there was no way to hold the company accountable.

“Shell complained that the decision only affected them,” said Wetzer. “They were saying it would be much better if the obligation applied across the [entirety of] the economy.” Article 22 and CSDDD were implemented to legally enforce standards across all member states that corporations could use as a baseline.

But now, if the overarching regulatory framework of CSDDD were to be lost, companies would be held to standards imposed by each member state. “A growing number of companies are being sued in court for causing harm, which may be the consequence of the lack of clear regulatory requirements,” noted an assessment by the EU Commission. These companies currently include TotalEnergies, ENI, VW, BNP Paribas, and ING, among others.

“The litigation is going to rise, country by country, to companies operating in different parts of the EU,” said Wetzer.

Encouraging empty promises

CSRD compliance complements CSDDD, but when one is weakened, the symbiotic relationship crumbles. Prior to the Omnibus package, CSRD required transparency in the creation of climate transition plans, and CSDDD insured implementation of those plans. If CSDDD were no longer to require plan implementation, companies with unrealized plans could be accused of greenwashing.

“Without [CSDDD] obligation, there is a risk of encouraging empty promises,” the letter stated. And that could lead to lawsuits regarding misrepresentation.

No guiding regulations will increase costs

The 31 legal scholars are not the only ones who believe that companies that don’t fully commit to climate transitions now will only be creating more work and exposure to financial risk for themselvesin the future.

KPMG U.S. Sustainability Leader Maura Hodge previously told Trellis that regardless of legislative rollbacks, companies should continue to move forward on all emission inventory and mitigation plans, adding the reminder that U.S. state corporate compliance laws, like California’s, still stand.

[Connect with more than 3,500 professionals decarbonizing and future-proofing their organizations and supply chains through climate technologies at VERGE, Oct. 28-30, San Jose.]

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