Europe Deepens Its Rollbacks. Legal Challenges Likely

Author

Tim Mohin
June 20, 2025

What’s in this week’s newsletter:

  1. EU proposes further rollbacks, legal challenges could lie ahead

  2. SEC withdraws more Biden-era ESG rules

  3. ISSB is now in 36 jurisdictions

  4. IRA tax credits see slight reprieve in Senate bill

  5. Businesses and banks are reversing their climate commitments

The scale and breadth of the rollbacks of Europe’s sustainability rules under their “Omnibus Simplification Package” have surprised most. As negotiations heat up before the EU’s revolving Presidency rotates from Green Deal skeptic Poland to greener Denmark, the rules might be weakened further.

Last week, EU Parliament's lead Omnibus negotiator Jörgen Warborn issued draft amendments proposing the following changes to the Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD):

  • An increased threshold for compliance covering companies with more than 3,000 employees and €450 million turnover. This would triple the current proposal of 1,000 employees - thus significantly reducing the compliance burden. 

  • Eliminating the requirement for companies to issue climate transition plans under the CSDDD and making them voluntary under the CSRD.

  • Removing the ability for member states to make rules more rigorous.

This week, the EU Commission released a new Omnibus amendment text, which focused specifically on the CSDDD, proposing:

  • Raising the reporting threshold to companies with more than 5,000 employees and €1.5 billion in turnover. The rationale is that larger companies will cover many smaller companies in their supply chains and have the resources to absorb the costs.

  • Due diligence will be limited to the first tier of suppliers unless there is clear evidence of adverse impacts.

  • Delaying the requirement to issue climate transition plans until 2030.

The EU Commission is scheduled to discuss all of these changes on June 24th, and we can expect to know more about the fate of the EU Green Deal before the Presidency switches to Denmark in July.

One part of the Omnibus that is already agreed to is the very pragmatic changes to the EU's Carbon Border Adjustment Mechanism (CBAM). The CBAM update will exempt 90% of companies by establishing a threshold of 50 tons of imports per year of covered goods. The remaining 10% of companies import covered goods that cover 99% of the emissions.  

Adding more uncertainty, legal scholars are claiming the simplifications proposed under the Omnibus could be challenged in the courts. The challenge is that the Omnibus is being rushed through without an impact assessment. Swedish lawyer David Frydlinger, who recently co-authored a legal analysis of the Omnibus package, concluded that “the commission hasn’t done its legal homework, and if challenged in the court, parts of the Omnibus could be annulled.”

There is legal precedent here. Previously rushed laws, like the Data Retention Directive, were struck down in the courts for the same shortcuts followed by the Omnibus. 

2. SEC Withdraws Anti-Greenwashing Rules

New SEC Chair Paul Atkins

This anti-greenwashing rule was aimed at giving investors clear information to make investment decisions. It would have required funds labeled as green, sustainable, or ESG to disclose comparable and consistent information about their funds' ESG strategy and carbon footprint in their annual reporting materials. 

One rule that, despite a GOP request for it to be withdrawn, seems to have survived the cull of rules introduced under the leadership of former SEC Chair Gary Gensler is the Investment Company Names Rule. In March, the SEC announced a 6-month extension of its ‘Names Rule.’ The update to the 1940s Names Rule requires investment funds explicitly labeled as ESG or sustainable to allocate 80% of the portfolio’s assets towards that purpose. As it stands, the Names Rule will be phased in from mid-2026.

3. ISSB Now in 36 Jurisdictions

All of the countries have some level of ISSB-aligned sustainability reporting regulatory framework. Source: ISSB

The International Sustainability Standards Board (ISSB) standards are only 2 years old. In that relatively short time, 36 countries or regions have adopted the ISSB’s standards as the baseline of their sustainability disclosure regulations to varying degrees.

As part of their announcement, the ISSB released 17 jurisdiction profiles to show the level of alignment with the ISSB standards. 14 of those countries have fully adopted the ISSB standards, two have just adopted the climate-related disclosure standard (S2), and one is in partial alignment. 

To support this wider adoption, this week the ISSB released a series of e-learning courses to help companies get up to speed with their disclosure standards. 

4. IRA Gets Slight Reprieve

The updated Senate text of the “Big Beautiful Bill” was expected to bring some reprieve to the Inflation Reduction Act tax credits. While the Senate version of the budget reconciliation bill did soften some of the cuts compared to the House version, it did not do so as much as was expected. Among some of the main changes in the Senate version:

  • Extending clean energy tax credits to include all clean energy sources except wind and solar, instead of just nuclear, in the House bill. Allowing tax credits for hydro, geothermal, and batteries through to 2033.

  • Allowing tax credit transferability for the duration of remaining credits, while the House bill would have removed them completely. 

  • Providing more time for solar and wind projects than the House bill: projects that begin construction in the next six months would get the full credit, if they begin construction in 2026, they would receive 60% of the tax break, and 20% if they begin in 2027.

  • The Senate bill is tougher than the House on the EV and home energy efficiency tax credits - phasing them out entirely over the next 6 months. 

Environmental NGO Ceres issued a statement saying the Senate version would “raise costs, cut jobs, and cede U.S. leadership in critical industries.” Jason Grumet of America’s Clean Power said the Senate bill “would increase household electricity bills and threaten hundreds of thousands of jobs across the country.”

5. Companies Reverse Climate Commitments

This Bloomberg article cataloging all of the companies that have reversed their climate goals over the last year went viral last week. It begs the question whether these businesses were overly ambitious with their goals, or if they are responding to political pressure.

As climate commitments slow, the 16th edition of the “Banking on Climate Chaos” report finds that banks' investments in fossil fuels ticked upwards for the first time since the Glasgow Financial Alliance for Net Zero (GFANZ) was founded in 2021. In the last year, many banks have left GFANZ and its sister groups, like the Net Zero Banking Alliance, which may be part of the reason for increasing investment in fossil fuels. 

The views expressed on this website/weblog are mine alone and do not necessarily reflect the views of my employer. 

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