Asset Management | Practical implications of the proposed simplification omnibus

In response to criticism of increased regulation and “red tape” and the impact this has had on the competitiveness of European business, as outlined in the Draghi report, the European Commission has introduced a proposal for an omnibus package aimed at simplifying three key sustainability-related legislative acts: the Corporate Sustainability Reporting Directive (the CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), and the EU Taxonomy.

The omnibus does not impact the disclosure and reporting requirements that regulated asset managers are subject to, such as those set out in the Sustainable Finance Disclosure Regulation (the SFDR) and the EU Taxonomy. The omnibus is first and foremost directly relevant to the portfolio companies of Norwegian asset managers. However, with the relatively major changes that are now proposed, asset managers should identify how this impacts their portfolio companies, and indirectly their own operations, and assess whether an adjustment in course is needed.

In this newsletter, we provide an overview of the omnibus in its current draft form and examine the potential implications for Norwegian asset managers if these changes are implemented.

The draft omnibus

The European Commission announced a series of omnibus packages in November 2024 in response to the call in the Budapest declaration aiming to reduce reporting burdens by 25% in the first half of the year of 2025. Certain key changes proposed on the simplification omnibus includes:

CSRD

A significantly reduced scope, limited to large undertakings with more than 1,000 employees (while the previous threshold was 250 employees). Only companies meeting the employee threshold and that have either a turnover of more than EUR 50 million or balance sheet total of more than EUR 25 million will be in scope. The EU Commission has stated that this will reduce the number of companies within scope by about 80%.
The European Sustainability Reporting Standards (ESRS), that shall be used to report the data under CSRD, will be simplified and the number of data points will be reduced. In addition, sector-specific reporting standards have been dropped.
A voluntary reporting standard will be adopted for companies out of scope, intended to work as a shield by restricting the information that companies in-scope can request from out of scope-companies in their value chains.
The reporting requirements for large companies that have not yet started implementing the CSRD and for listed SMEs (the so-called wave 2 and 3 companies) will be postponed by two years.

EU Taxonomy

A reduced scope, allowing for voluntary reporting by companies in scope of the CSRD with a net turnover of under EUR 450 million.
Amendments to the Taxonomy Disclosures Delegated Act (which specifies how companies shall report on taxonomy-alignment), simplifying the reporting templates. The EU Commission has stated that this will result in a reduction of data points by almost 70%.
A possibility to exclude from reporting economic activities that do not exceed 10% of total turnover, capital expenditure, or total assets.
Amendments to the calculation of the Green Asset Ratio (GAR) for banks.

CSDDD

A postponement, providing more time to prepare for in-scope companies by extending the deadlines by one year, meaning that the largest companies (the first wave) will be subject to the due diligence requirements in the CSDDD from July 2028.
Removal of the obligation to conduct in-depth assessments of indirect business partners (with certain exemptions).
Companies will be required to conduct due diligence every five years, rather than annually as originally stipulated.
Removing civil liability rules in case of violations and deferring to national law.
Asset managers that meet the thresholds (including alternative investment fund managers, management companies of UCITS and investment firms) will be exempted from the due diligence requirements for their downstream activities, such as investments.

In addition to the above, the omnibus also proposes certain simplifications to the Carbon Border Adjustment Mechanism (CBAM) and the InvestEU programme.

While the omnibus undoubtedly involves several reverses, it is key to note that certain fundamental expectations with respect to business conduct, as outlined in the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises, are unchanged. These expectations and principles apply to all companies, regardless of sector, size, or jurisdiction. It is not uncommon for asset managers to have committed to adhering to these principles. The sustainability agenda should not necessarily be considered undermined just as a result of the omnibus.

The EU Commission has opened for input on the proposals regarding the taxonomy until March 26th. The draft omnibus must be approved by the European Parliament and the Council.

Implications for Norwegian asset managers

As stated above, the omnibus does not include proposed changes to the specific sustainability-related requirements that apply to regulated asset managers. A separate revision of the SFDR (and the EU Taxonomy, as it pertains to financial products) is ongoing in the EU, and a proposal is expected to be published in Q4 this year. While asset managers may in theory be directly impacted by the omnibus to the extent that they fall within the scope of the CSRD, the CSDDD or the Taxonomy (on a company level), this is not a very practical issue for Norwegian asset managers due to their size.

The omnibus is likely to impact a vast number of companies owned by funds managed by Norwegian asset managers. Many companies that were previously within scope of the CSRD and the EU Taxonomy may now be out of scope. For the portfolio companies, this may seem beneficial, reducing time and costs associated with ensuring compliance with these regulations. For asset managers however, the reduced scope might lead to less, and potentially lower-quality, data for making informed investment decisions and fulfilling their own reporting obligations to investors. Such impacts will vary for different investment strategies. For example, asset managers that make control private equity investments may leverage their influence to ensure that they receive the necessary data. Managers that make minority investments, for example within venture, or managers with a fund-of-fund strategy, may not be able to do the same, and is to a larger degree reliant upon regulatory frameworks to provide transparency and sustainability information.

BAHR’s view

The omnibus proposes significant changes to legislative initiatives that were adopted not long ago. It is positive that the EU listens to criticism and is willing to turn back and reconsider. However, there is no doubt that companies, and their owners, have spent significant time and resources in preparing for compliance with legislation that is now partially reversed by the omnibus. For asset managers and their portfolio companies, another layer is added by the fact that the SFDR requires that many asset managers obtain extensive data from their portfolio companies regarding sustainability KPIs and taxonomy alignment. This is regardless of whether the portfolio company is under a regulatory requirement to report such data.

EU legislation must be incorporated into Norwegian law before it applies to Norwegian entities. The CSRD and the EU Taxonomy are already implemented into Norwegian law, and the omnibus is likely to require changes to the Norwegian laws implementing the CSRD to ensure harmonisation. It is important that the omnibus simplifications are implemented in Norway simultaneously as in the EU, to ensure that Norwegian companies can benefit from the simplifications and will not face stricter requirements than their EU counterparts.

A practical and time sensitive question is whether companies that are required to report under the current version of the CSRD for the financial year 2025 but will be out of scope if the omnibus is adopted, should pause their reporting preparations. We hope that the supervisory authorities will provide some meaningful guidance on this to assist companies in their compliance planning and avoid unnecessary time and resources. In the absence of a clear statement from authoritative sources, we advise companies to limit their efforts to what is reasonable, and in any event be prepared to adhere to the original reporting requirements and deadlines.