The EU Omnibus Proposal – An Early Retirement of Brussels Effect Decouples Global South from Corporate Accountability

Introduction

The legislative agenda advanced by the European Union (‘EU’) has long embodied the Brussels Effect, the powerful mechanism by which EU regulatory standards are exported globally. The EU corporate accountability framework—comprising the Corporate Sustainability Reporting Directive (‘CSRD’) and, crucially, the Corporate Sustainability Due Diligence Directive (‘CS3D’)—was poised to become the most ambitious instantiation of this effect, compelling global businesses to uphold human rights and environmental standards throughout the lifecycle of supply chains.

This ambition has collided with the political narrative of enhancing the competitiveness of EU businesses in global markets, sought to be achieved through a series of omnibus simplification measures. However, these simplification measures have leapt a long step forward, jumping on the deregulation bandwagon steered by the Trump Administration in the United States, causing an earlier-than-anticipated retirement of the Brussels Effect for sustainability regulation. This not only imperils the EU sustainability framework but also risks an ‘impact transfer’ to the Global South—particularly due to its vulnerable positioning in supply chains—jeopardising corporate accountability globally. 

‘Impact Transfer’ of EU Omnibus Proposal to the Global South

As part of the proposal amending CSRD and CS3D (‘Omnibus Proposal’), the European Commission has proposed that the reporting requirements under CSRD apply only to large undertakings having more than 1,000 employees. The Council of the EU, in its negotiating mandate, has further added a net turnover threshold of over €450 million to the undertakings in scope. On CS3D, the Council has proposed increasing the scope thresholds under the Omnibus Proposal to 5,000 employees and €1.5 billion in net turnover.

(a) Breaking the lower links of the supply chain

The original text of the CS3D mandates that due diligence be conducted across the ‘chain of activities’ of a business, which encompasses both upstream and downstream business partners. The Omnibus Proposal aims to shift from an entity-based approach to a risk-based approach, proposing to limit the obligation to conduct an in-depth assessment solely in relation to direct suppliers. This obligation is proposed to extend to indirect suppliers only in cases where objective and verifiable information evidences risks deeper in the supply chain.

While proposed as a regulatory retreat for companies, this move will have the effect of eliminating the lower links of supply chains from scope altogether, which are often characterised by severe risks. Be it forced labour and water pollution in the South Asian textile industry, land degradation caused by cobalt mining in the Democratic Republic of Congo or loss of ecosystems due to oil spills in the Niger Delta—there is enough evidence to illustrate the concentration of such risks beyond direct suppliers, often in the Global South. Despite the prevalent corporate attempts at greenwashing, there are instances where multinational corporations have identified and disclosed these risks in their supply chains and suspended relationships with suppliers involved in propagating them, signalling the required evidence.

The proponents of the Omnibus Proposal may argue that any plausible information showcasing risks beyond direct suppliers will continue to be covered (at least for limited companies still in scope). This warrants a closer look at the Omnibus Proposal as it limits the obligation of stakeholder engagement to those ‘directly’ affected, and of consultation to ‘relevant’ stakeholders, the contours of which are discretionary for companies to define. It is essential to highlight that many social and governance risks are often made visible only by indirect stakeholders such as civil society due to the suppression of the very communities that suffer from these risks (eg forced labour). Therefore, as big corporations are left to their own devices to determine who is classified as a relevant stakeholder, and with the information itself needing to satisfy a high evidentiary threshold defined by the corporations to be deemed ‘plausible’, it is unlikely for any information to be considered plausible for action.

To further allow companies to choose cutting off supply chain links reaching the Global South from the scope of disclosures, the Omnibus Proposal has sought to remove the empowerment of the European Commission to adopt sector-specific reporting standards. The original text of the CSRD mandated the Commission to adopt sector-specific standards for reporting against specialised data points due to unique risks posed by certain industries. A one-size-fits-all framework is unlikely to capture the granular yet significant local impacts (eg chemical pollution from dyeing or water stress from cotton production in the Indian textile industry), thereby ensuring that these risks remain unidentified and unaddressed.

(b) Insulating ‘competitive’ companies from liability

The principal intent behind corporate reporting and due diligence is to hold companies accountable for their adverse impacts and ensure justice for those adversely impacted. The Omnibus Proposal      deals a blow to this intent by allowing member states to exclude the EU-wide applicable civil liability regime, in instances of damage due to non-compliance with due diligence obligations, in exchange for national liability regimes. In consideration of the variation in national laws regarding the permissibility of representative actions, the Omnibus Proposal further deletes such requirement for member states to ensure that civil society has the specific right to bring representative actions on behalf of victims, which was earlier set out under CS3D.    

These measures will effectively result in a lack of recourse available to vulnerable groups (otherwise represented by non-governmental organisations and unions), unless permitted by the national laws of the relevant jurisdiction. Further, since these jurisdictions have historically allowed these harms to occur, they are likely to have weaker regulation and enforcement mechanisms, effectively insulating companies from liability for the harm caused.

In the same vein, the Omnibus Proposal prevents member states from adopting stricter national rules on due diligence requirements under CS3D. This ensures that while enforcement mechanisms may vary—separately giving rise to forum shopping for jurisdictions with weaker justice systems—     member states shall not engage in gold-plating standards. This further ensures a successful retirement of the Brussels Effect.

What’s the final vote?

With 17 votes in favour of the Omnibus Proposal, the Legal Affairs Committee confirmed its support for deregulation in its meeting on 13 October 2025. However, the Parliament in its plenary session on 22 October 2025 rejected the Committee’s mandate with 309 votes in favour and 318 against it. The Omnibus Proposal will now return to the Parliament in its next plenary session for another vote and possible amendments on 13 November 2025. Once the Parliament adopts its position, the trilogue negotiations will commence, with the target being to finalise the legislation by the close of 2025.      

The Omnibus Proposal is on an accelerated road to its adoption, despite being criticised as a backward step in the journey towards creating a sustainable economy. In pushing this deregulation, the EU has painted a false dichotomy, suggesting that competitiveness can only be achieved by sacrificing social responsibility and human rights. This disregards decades of principled progress in corporate governance and grants a license to companies to offshore risks to the Global South. It also marks an unfortunate end to the Brussels Effect, a lost opportunity towards building the EU as a global leader in social and environmental matters and a tacit endorsement of a race to the bottom in supply chain welfare and environmental standards. The ball is in Parliament’s court now, and what happens next is a wait-and-watch game.

Navya Bhayana is an Associate at Trilegal.