The Hidden Cost of the Omnibus: Simpler Rules but Scarcer Data

How EU’s Regulatory Relief Effort May Undermine Risk Management but Stimulates the Use of AI

“If Europe’s ambitious climate targets are matched by a coherent plan to achieve them, decarbonization will be an opportunity for Europe. But if we fail to coordinate our policies, there is a risk that it could run contrary to competitiveness.” - Mario Draghi

These words from Mr. Draghi capture the dichotomy at the heart of Europe’s green agenda: the need to balance climate ambition with economic resilience. The Omnibus Proposal reflects this balancing act as an effort to reduce regulatory burden and, in doing so, stimulate competitiveness and growth.

As part of the simplification drive, the proposal introduces targeted amendments to key legislative frameworks including the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), and the European Union Taxonomy.

• The CSRD will now apply only to companies with over 1,000 employees - excluding nearly 80% of previously covered entities.
• The CSDDD’s application is delayed by one year to 2028, with reduced requirements for indirect business partners and small and medium-sized enterprises.
• EU Taxonomy disclosures are streamlined by cutting nearly 70% of data points and simplifying Green Asset Ratio (GAR) calculations.

By simplifying the reporting requirements and changing the scope, the Omnibus Proposal aims to reduce the regulatory burden for companies. While this change encourages the envisioned growth and innovation, it also leads to less availability of sustainability data from these businesses. This reduction in company data can create challenges for financial institutions, especially considering the requirement to conduct risk assessments under the ECB Guide on CER (European Central Bank Guide on Climate-related and Environmental Risks) and the EBA (European Banking Authority) guidelines. By limiting the sustainability information, banks and lenders may find it harder to assess and manage risks related to sustainability.

We believe that to overcome the data deficit problem, the use of new technologies like AI can be a solution. Financial institutions can use AI-powered tools to automate and streamline their data collection process. For instance, it can assist in gathering customer information and verifying identities during the onboarding process, significantly reducing the time and resources required for manual data entry. Besides that, AI can also scrape and analyze unstructured data from public sources (for example, news articles, company websites, social media) to build a holistic picture of sustainability-related risk.

At Synechron, we bring deep technical expertise in AI with a comprehensive understanding of the sustainability landscape. Beyond expertise consulting, we can also help your company plan and implement the required business process changes and solutions needed to adapt. Our proven ability to deliver intelligent and scalable solutions gives us a unique advantage to help you bridge ESG data gaps and strengthen risk assessment in a post-Omnibus world.

Are you interested in Synechron’s ESG accelerator projects – where we combine technology and domain expertise to tackle the latest ESG challenges? Contact us today.