Is the Omnibus Running Over ESG?

Is the Omnibus Running Over ESG?

At the end of February, the European Commission introduced the Omnibus proposal package, bringing significant changes to the EU ESG regulation. While the Omnibus may not completely overturn the EU's previously ambitious ESG regulatory framework, it certainly slows it down. It is therefore worth examining how EU—and consequently Hungarian—ESG regulations are being affected.

In the business world, ESG has become one of the most talked-about acronyms in recent years. Although it currently applies directly only to the largest companies, even smaller firms have come across it through supply chains. By now, most are familiar with what the three pillars stand for: E for Environmental, S for Social, and G for Governance.

The prioritization of sustainability issues has not been driven solely by the EU’s expanding regulatory landscape—Hungary’s ESG Act also entered into force on January 1, 2024, followed by several lower-level implementing regulations. Domestically, the Supervisory Authority of Regulated Activities (SZTFH) has been appointed to oversee the ESG domain, with powers that include accrediting ESG market players, conducting inspections, and even imposing sanctions, in addition to regulating the ESG market.

Where Did the Omnibus Come From?

Even those well-versed in ESG might wonder: where did the Omnibus come from, and why is there a need to amend regulations, some of which haven't even fully entered into force yet?

The answer lies in the feedback from affected companies and the now-famous Draghi Report, published in September 2024. The essence of this feedback is that the EU’s ESG regulations impose such a heavy administrative burden and cost on European businesses that many can barely cope. Meeting these requirements diverts time and resources away from core business activities and creates a competitive disadvantage compared to U.S. or Chinese companies. In short, both the market and the former President of the European Central Bank agree that the administrative burden needs to be reduced.

What Does the Omnibus Change?

The Omnibus proposal aims to amend several already-adopted ESG-related EU laws, primarily by extending certain deadlines. It also affects the Taxonomy Regulation, explains Dr. Péter Weidinger, LL.M., ESG expert at act legal Hungary. The two most important directives in question are the CSRD (Corporate Sustainability Reporting Directive) and the CSDDD (Corporate Sustainability Due Diligence Directive).

The CSRD deadlines would be extended by two years. This doesn’t mean a fundamental change to the regulation, but rather that companies will gain additional time to implement compliance and prepare their first reports. This is particularly significant for companies currently required to report in 2025 on the year 2024, as well as those due to report in 2026 on the year 2025. It is important to note that CSRD rules have already been implemented into the Hungarian ESG Act, meaning that once the Omnibus proposal is adopted, amendments to Hungarian law (and the deadlines therein) will also be necessary.

As for the CSDDD, which entered into force in summer 2024, the Omnibus would extend the national implementation deadline by one year—until July 26, 2027. Likewise, the first wave of companies falling under the CSDDD would also get an additional year to prepare for the regulation.

Beyond the timing adjustments, the Commission also aims to significantly reduce the number of companies subject to the reporting obligation—by approximately 80%. This would be achieved by raising the employee threshold to over 1,000, meaning companies with fewer than 1,000 employees would no longer be required to report.

So, Can We Sit Back and Relax?

Since the Omnibus is merely a proposal at this stage—and may never be adopted, or not in its current form—it is crucial to rely on the currently effective Hungarian and EU regulations.

Therefore, companies that are already required to report, or will be next year, cannot afford to sit back and assume they’ve gained more time. ESG compliance and reporting should not be removed from their to-do list.

It’s important to remember that legislation in the EU follows a multi-stage process, which even in the best case takes several months—and often years—to complete. Accordingly, all stakeholders are advised to base their actions on the already adopted and effective regulations and to prepare ESG reports accordingly. Even if the new rules modifying CSRD and CSDDD are adopted this year, they will still need to be transposed into Hungarian law—a process that can also take years.