The EU Regulatory Omnibus’ Next Stop: Mexico!

When Mario Draghi, Ph.D. in economics from the Massachusetts Institute of Technology (MIT), former European Central Bank president, and Italian prime minister, presented the report titled “The Future of European Competitiveness” in September 2024, I guess he knew that the conclusions he, alongside numerous experts and contributing organizations, had reached could potentially produce so many changes for many corporations in the European Union. Still, I wonder if he thought about the bigger picture.

Of course, the so-called “Draghi report” did not change the global sustainability regulatory landscape alone. Other voices echoed messages for the simplification of the European regulatory framework, including more recently President Donald Trump at the World Economic Forum in Davos, suggesting that such a regulatory environment had hindered American businesses.

In their report, Draghi and other experts point out that European growth has been slowing down since the beginning of the century, identifying three areas of focus in order to stimulate growth. One of those areas is the regional coordination backed by a coherent plan to turn decarbonization ambitions into an opportunity for Europe. Failing to do so may negatively affect the region’s competitiveness and growth. Such insights fed what we now know as the European Commission's Omnibus package.

The Omnibus package could have, if approved as we now know it, great implications for different sustainability reporting directives, including the Corporate Sustainability Reporting Directive (CSRD), the EU Taxonomy, the Carbon Border Adjustment Mechanism (CBAM), and the Corporate Sustainability Due Diligence Directive (CSDDD).

Since the main driver for the Omnibus package was to gain efficiency through simplification, one of the main proposed changes is the reduction of the scope of these directives. For example, around 80% of the companies previously covered by the CSRD are now exempted, focusing now on companies with over 1,000 employees and either €50 million-plus (US$54 million) turnover or €25 million-plus in assets. For the CBAM, now around 90% of importers are excluded, although it is expected to still cover more than 99% of the emissions originally in the scope.

There are also proposed changes that seek to reduce the level of complexity (and associated costs) in those directives. To start, for the CSDDD, reducing the periodicity of the assessments and monitoring of companies’ partners from every 12 months to five years and limiting the information that smaller companies need to provide during the value chain mapping step. For the CBAM, there is also a simplification in the authorization process for CBAM declarants as well as in the options to calculate embedded emissions of regulated products and the respective reporting requirements. For the EU Taxonomy, there is also a simplified reporting process, and a new materiality threshold allows companies to focus their reporting only on material activities.

A third example of the Omnibus package’s effect is the request to delay reporting obligations. For the CSRD this means a delay of two years for most companies (for example, those originally considered to report their full-year results for 2025 in 2026). Meanwhile, for the CBAM, declarants need to surrender their CBAM certificates every year by Aug. 31 instead of May 31, as it was initially considered. For the CSDDD, this means a delay of one year in the application of these regulations’ requirements for the largest companies.

As expected, all the suggested changes have generated controversies in different aspects. While it is well understood how burdensome the original (and still valid) regulation is, some stakeholders believe that the reduction in the scope of these directives detrimentally affects the transparency and accountability of corporations. This is not a minor point considering that the access to well-structured and complete information for different stakeholder groups but especially for investors was one of the main drivers behind enacting these directives.

On the other hand, after numerous attempts for alignment and simplification from sustainability reporting frameworks and standards, some voluntary and some compulsory, corporations still face so-called “reporting fatigue,” and now even more so than before. This is making companies reassess their participation in some voluntary reporting frameworks, prioritizing what regulation requires, and the Omnibus package could make the situation even more complex.

As an example, if CSRD changes as a consequence of the Omnibus package, the European Sustainability Reporting Standards (ESRS) may also be subject to adjustments or possibly  a more simplified version of them. If this happens, it may also have an indirect effect on the IFRS Sustainability Disclosure Standards and CDP, considering the interoperability of ESRS with both of them.

Changes like the one described above may not seem like a big deal, but they demand more time and energy from everyone involved in yearly sustainability reporting cycles to adapt.

And how does the Omnibus get to Mexico? Well, if approved as is after the respective legislative process, the reduction in the level of comprehensiveness of the analysis and estimations required to comply with the EU’s regulation sends a signal to all other regions. Especially now that the SEC's Climate Disclosure Rule has been put on hold in the United States, it seems to be a moment of stagnation in terms of climate ambition, which is critical considering we are so close to the year 2030, in which we are supposed to halve our global emissions compared to 2019 levels to stay on track to meet the goals of the Paris Agreement.  

But where some are lagging, others are leading by example. Using the United States as an example again, different states are working on their reporting legislation. For example, California has approved the Climate Corporate Data Accountability Act (SB 253) and the Climate-Related Financial Risk Act (SB 261), which mandates large companies to disclose GHG emissions (including auditing requirements) and climate-related risks. Other states are following that example, like New York, Illinois, and Washington, and are working on their own legislation.

Also, as I shared with you in my last article at the beginning of this year, there are new developments regarding sustainability reporting for corporations in Mexico. Now, after its publication in the Official Journal of the Federation in late January 2025, we know that securities issuers in Mexico must submit annual sustainability reports based on the IFRS Sustainability Disclosure Standards (S1 and S2) with assurance requirements that will increase throughout time. This new requirement, together with the recent Sustainability Information Standards published by the Mexican Council of Financial and Sustainability Information Standards (CINIF), asking companies to disclose 30 basic sustainability indicators, also sends a positive signal to the rest of Latin America and beyond regarding Mexico’s ambitions.

And what can Mexican companies do in the middle of so many changes? Here are some ideas:

• Continue to monitor the global reporting landscape to anticipate potential future disclosure needs or regulatory developments.

• Continue to invest in sustainability initiatives. Sustainability is no longer a luxury only global corporations can afford, nor should it be a side strategy that runs in parallel to the core of the business.

• Leverage voluntary reporting. Although the adoption of IFRS Sustainability Disclosure Standards S1 and S2 is not particularly simple, it is certainly more attainable for those companies that have been voluntarily reporting for many years.

• Continue to engage with your stakeholders for information-sharing purposes and to identify opportunities for synergies.

• Identify common reporting elements in the different frameworks you report to. This will help you to optimize time while meeting different deadlines throughout the year and to provide consistent information to different stakeholders.