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10 March 2025

The EU’s Sustainability Omnibus: Striking a balance between sustainability objectives and competitiveness?

By Stella Nalwoga, Amanda Carlota, and Paolo R. Vergano

On 26 February 2025, the European Commission (hereinafter, Commission) presented the first in its series of “Simplification Omnibus” packages, which had been announced as part of the Competitiveness Compass. The first “Simplification Omnibus” package contains, inter alia, proposals to significantly amend the EU’s Corporate Sustainability Reporting Directive (hereinafter, CSRD) and the EU’s Corporate Sustainability Due Diligence Directive (hereinafter, CSDDD). This comes as part of the Commission’s broader effort to enhance the competitiveness of EU businesses, while maintaining the sustainability objectives of the European Green Deal. This article examines some of the proposed changes, particularly regarding the scope and application of the reporting and due diligence requirements.

Limiting the scope of the CSRD

The CSRD and the CSDDD both aim at fostering sustainable corporate behaviour. The CSRD focuses on transparency and accountability and, on the basis of the current text, requires large EU companies, small and medium-sized enterprises (hereinafter, SMEs) listed on EU-regulated markets, and non-EU companies, which generate a net turnover of more than EUR 150 million in the EU and have a subsidiary in the EU (i.e., a large company or a listed SME), or branch in the EU that generates a net turnover of more than EUR 40 million in the EU to publish regular reports on the social and environmental risks that they face, and on how their activities impact people and the environment, with the objective of enabling investors, civil society organisations, consumers and other stakeholders to evaluate the sustainability performance of companies. In 2025, the “first wave” of covered companies, namely large public interest entities with more than 500 employees, are required to publish their reports for the 2024 financial year.

In its ‘Omnibus’ proposal, the Commission foresees to maintain this deadline, but proposes to postpone the application for other covered companies. More specifically, for companies in the “second wave”, namely other large companies with more than 500 employees, and “third wave” companies, namely SMEs with securities listed in EU regulated markets, which were due to report in 2026 and 2027, respectively, the Commission now proposes to postpone their reporting requirements by two years. The postponement would provide the European Parliament and the Council of the EU with ample time to agree on the proposed substantive changes, “to avoid a situation in which certain undertakings are required to report for financial year 2025 (second wave) or 2026 (third wave) and are then subsequently relieved of this requirement”. With respect to non-EU companies, the application of the respective reporting requirements remains unchanged and such businesses would still be required to publish reports for the 2028 financial year in 2029.

The most notable proposal appears to be the proposed reduction of the scope of the CSRD to large companies with more than 1,000 employees and either a turnover above EUR 50 million or a balance sheet total above EUR 25 million. This would drastically reduce the number of in-scope companies, both based in the EU and outside of the EU with subsidiaries or branches in the EU, by about 80%, from an estimated 50,000 to a mere 10,000 companies. These revised thresholds would align the CSRD more closely with the CSDDD, which only applies to companies with more than 1,000 employees and a turnover above EUR 450 million. According to the Commission, the proposed change would focus sustainability reporting obligations on “companies which are more likely to have the biggest impacts on people and the environment”.

Delaying the transposition of the CSDDD

The CSDDD entered into force on 25 July 2024 and EU Member States are tasked to transpose it into their respective laws by 26 July 2026. Once transposed, the CSDDD will require EU companies, as well as non-EU companies that are active on the EU’s internal market, to conduct a comprehensive due diligence assessment throughout their respective supply chains with the aim of identifying, preventing, and mitigating adverse impacts on human rights and the environment. The Commission proposes to postpone the transposition deadline to 2027 and, as a consequence of this delay, to also postpone the “first wave” of application of the CSDDD, which concerns companies with more than 5,000 employees and a turnover above EUR 1.5 billion, from 2027 to 2028.

Notably, the proposal does not seek to amend the range of companies falling within the scope of the CSDDD, which was already significantly reduced during the final steps of the legislative process in 2024 (see Trade Perspectives, Issue No. 9 of 6 May 2024). Rather, The Commission’s proposal seeks to limit the extent of companies’ due diligence requirements. Currently, under Article 8(2) of the CSDDD, the covered companies would be required to assess the impacts of their own operations, those of their subsidiaries, and, “where related to their chains of activities, those of their business partners, in the areas where adverse impacts were identified to be most likely to occur and most severe”.

On the basis of the definition of “business partner” in Article 3(1)(f) of the CSDDD, this obligation would entail assessing both direct and indirect business partners (i.e., a direct business partner is an entity with which the company has “a commercial agreement related to the operations, products or services of the company or to which the company provides services”, while an indirect business partner is an entity that is not a direct business partner, but that “performs business operations related to the operations, products or services of the company”). The Commission now proposes to limit the general due diligence obligation to direct business partners and extending it to indirect business partners only in cases when there is “plausible information” of potential adverse impacts.

A second notable proposed amendment concerns the stakeholder engagement under Article 13 of the CSDDD, which requires covered companies to carry out “meaningful engagement with stakeholders” throughout the due diligence process. The proposal foresees to limit stakeholder engagement to only those individuals or communities that are “directly affected” by the company’s products, services, or operations, as well as those of its subsidiaries and business partners, such as people living in proximity to a company’s plant who are therefore directly affected by the pollution it causes. Finally, the proposal foresees that companies would no longer be required to terminate business relationships with partners in cases of actual or potential adverse impacts, only requiring them to suspend the relationship “while continuing to work with the supplier to find a solution”.

“Watered down” requirements for greater competitiveness?

While businesses welcomed the proposal, it is worth discussing if and how the proposals reconcile the Commission’s objective of making EU companies more competitive, with the sustainability objectives of the CSRD and CSDDD. While there are certainly issues of proportionality that need to be taken into consideration, the question is whether the number of employees, turnovers, or the balance sheets are indeed the most appropriate metrics. Companies that fall below the proposed new thresholds could still have significant adverse impacts on people and the environment, which would go unreported. Similarly, by limiting due diligence to only direct business partners, a company may overlook abuses that occur further along its value chain, such as third-country suppliers making use of child labour or engaging in environmentally damaging practices.

Therefore, the postponement of the transposition and/or of the application of the CSRD and CSDDD may be both cause for relief and concern. The changes would also disadvantage “first mover” companies that have already invested heavily in compliance, often hiring staff dedicated to ensuring compliance, notably with the CSRD. According to the report authored by the former President of the European Central Bank Mario Draghi on European competitiveness, compliance with the EU’s sustainability directives is not cheap, with costs for EU companies ranging from EUR 150,000 for non-listed companies to EUR 1 million for listed companies. Furthermore, the uncertainty surrounding regulatory changes could discourage long-term sustainability investments, as businesses may be reluctant to allocate resources when compliance requirements remain in flux.

A “fast-tracked” legislative process?

The Commission’s proposals will now be submitted to the European Parliament and the Council for their consideration, which would be followed by inter-institutional trilogue negotiations to reach agreement. It is uncertain how long this will take, but, given the extent of the proposed amendments, it is doubtful that the EU’s co-legislators would be able to reach “rapid agreement”, as the Commission hopes for. Companies falling within the scope of these Directives, especially those that fall within the “second wave” of reporting under the CSRD, should closely monitor developments, as they are likely the ones to be most affected by any changes regarding the scope and the implementation timeline.

For any additional information or legal advice on this matter, please contact Paolo R. Vergano

 

Indonesia’s new policy on 100% export earnings retention: Implications and compliance challenges for exporters of natural resources

By Alya Mahira, Caitlynn Nadya, and Paolo R. Vergano

On 17 February 2025, the Government of Indonesia issued Government Regulation No. 8 of 2025 (hereinafter, GR No. 8 of 2025), which requires exporters of certain natural resources to retain 100% of their export earnings within Indonesia’s financial system for at least one year. GR No. 8 of 2025 amends Government Regulation No. 36 of 2023 on Export Proceeds from the Business, Management, and/or Processing of Natural Resources (hereinafter, GR No. 36 of 2023), which only mandated that 30% of the export proceeds be retained for only three months. This marks a significant shift in policy and may have important implications. This article provides an overview of Indonesia’s new domestic retention requirement, and discusses the possible challenges and commercial implications for the relevant stakeholders.

Strengthening foreign exchange reserves: Key requirements under GR No. 8 of 2025

Indonesia plays a vital role in the global commodity market, driven by its abundant natural resources. In 2023, coal alone contributed approximately IDR 100 trillion (approximately USD 7 billion) to the country’s non-tax State revenues. Indonesia also maintains a strong trade surplus in the non-oil and gas sectors, with China, the US, and India collectively accounting for 42.94% of total non-oil and gas exports in 2024. Yet, a significant portion of export earnings from the exploitation, management, and processing of natural resources are held overseas, limiting their contribution to domestic economic growth. To address this, Indonesia’s President Prabowo Subianto introduced GR No. 8 of 2025, aiming to boost the country’s foreign exchange reserves by “approximately USD 80 billion in 2025”.

Article 7 of GR No. 8 of 2025 requires exporters of certain goods to retain 100% of the proceeds within Indonesia’s financial system for at least 12 months from the time of deposit. Such proceeds must be placed in, inter alia, a special account at Indonesian export financing agencies or banks that conduct foreign exchange services, banking instruments, and/or instruments issued by Bank Indonesia, which is Indonesia’s Central Bank. This applies also in a situation where a foreign investor in Indonesia exports covered goods to a customer in a third country.

This requirement applies to exporters in the mining, plantation, forestry, and fisheries sectors with export proceeds of at least USD 250,000. Exporters in the oil and gas sector are exempt from this requirement, but must continue to comply with GR No. 36 of 2023. Article 11(a) of GR No. 8 of 2025 permits exporters to use the retained funds for five specific purposes: 1) Converting proceeds into Indonesian Rupiah; 2) Making payments in foreign currency for tax obligations; 3) Distributing dividends in foreign currency; 4) Procuring goods and services in foreign currency; and 5) Repaying loans for the procurement of capital goods in foreign currency.

Incentives and sanction

The Government of Indonesia, in coordination with Bank Indonesia and the Financial Services Authority (i.e., Otoritas Jasa Keuangan), introduced incentives to support exporters in complying with GR No. 8 of 2025, which, inter alia, includes a 0% income tax rate on interests earned from foreign exchange earnings instruments (e.g., special saving accounts at Indonesian banks that offer foreign exchange services), allowing exporters to earn interest on their deposited foreign currency, an incentive compared to the standard 20% tax rate on deposited interest income.

Additional incentives include allowing retained funds to be used as collateral to secure loans in Indonesian Rupiah from local banks. If the loan is secured by eligible collateral, exporters may qualify for an exemption from the Maximum Credit Disbursement Limit calculation, meaning that banks may lend more without exceeding regulatory lending limits. Exporters can also exchange their deposited foreign currency for Indonesian Rupiah through “swap transactions”, a financial arrangement where two parties exchange cash flows over a specified period to manage the currency risk.

GR No. 8 of 2025 also introduces stricter administrative sanctions in case of non-compliance and exporters that fail to comply with the new requirements would face administrative penalties in the form of a suspension of export services. This could prevent exporters from generating revenue, leading to supply chain disruptions, cash flow constraints, and reduced business profitability.

Implications for Indonesia’s OECD accession process?

Indonesia is currently in the process of preparing its accession to the OECD. As the new 100% retention policy appears to restrict the free movement of capital and foreign exchange, it may need to be addressed in the context of the accession. Notably, in the context of foreign exchange, OECD member countries are subject to the OECD Code of Liberalisation of Capital Movements (hereinafter, Code), which mandates that member countries progressively eliminate restrictions on capital movements, including on “operations in foreign exchange”, such as the exchange of foreign currencies.

The Code allows OECD member countries to lodge temporary reservations, which are subject to periodic reviews aimed at reducing member countries’ reservations. For instance, Türkiye has reserved the requirement for export proceeds to be repatriated within a set period and for 30% of those proceeds to be surrendered to the Central Bank for local currency. Unless Indonesia were to amend the new requirements, it would need to table a reservation with the OECD Council, which would be subject to periodic reviews.

Unintended consequences and strategies for affected stakeholders

Indonesia’s export proceeds retention policy, first introduced in 2023, has been the subject of controversy. While banks and analysts have lauded the policy for enhancing dollar liquidity, exporters and investors have criticised it in view of concerns related to capital mobility, currency risks, and regulatory uncertainty. In general terms, trade financing arrangements may be affected, as retained earnings might otherwise be used as collateral for offshore loans or financing instruments.

Representatives from Indonesia’s Mining and Nickel Association and the Indonesian Employers Association noted that the 100% retention policy would exacerbate cash flow management that had arisen under the previous 30% retention policy. For instance, PT Bumi Resources, one of the largest mining companies in Indonesia, has warned that the policy could lead to temporary liquidity constraints, as exporters would have less cash available for immediate reinvestment or to meet working capital needs. GR No. 8 of 2025 may prompt foreign investors in Indonesia’s natural resources sector to pursue a more cautious approach and to reconsider expanding operations in Indonesia due to the restrictions on capital movement.

In view of the new rules, Bank Indonesia is expected to refine its digital and banking systems to facilitate the deposit of export proceeds. Additional outreach and technical guidance are also still expected. Affected exporters should start considering appropriate strategies, including diversifying revenue streams by expanding their domestic presence and sales, optimising cash flow management to ensure sufficient funds for immediate operational needs, and leveraging available tax incentives from the Government of Indonesia to help offset the financial impact of the new policy.

For any additional information or legal advice on this matter, please contact Paolo R. Vergano

 

Ireland’s new labelling rules for alcoholic beverages apply from 2026: A recent WHO Report endorses health warning labels on alcoholic products

By  Ignacio Carreño García  and  Tobias Dolle

On 22 May 2023, Ireland adopted the Public Health (Alcohol) (Labelling) Regulations, which will apply from 22 May 2026. The new rules provide that the calorie content and grams of alcohol in the product must be indicated on the labels of alcoholic products and that the products must provide warnings about the risks of consuming alcoholic beverages when pregnant, and of the possible liver diseases and cancers linked to alcohol consumption. This article discusses the WTO consistency of this measure and a new report by the World Health Organization (hereinafter, WHO) on alcohol health warning labels, as well as the related commercial implications.

Ireland’s Public Health (Alcohol) (Labelling) Regulations 2023

The consumption of alcoholic beverages has been identified as causing significant public health harms in Ireland. Based on Section 12 of the Public Health (Alcohol) Act (see Trade Perspectives, Issue No. 2 of 26 January 2018), the Public Health (Alcohol) (Labelling) Regulations, with their requirement for mandatory health warning labels on all alcoholic product packaging, apply to all alcoholic products sold in Ireland, whether produced domestically or imported into the country. No alcoholic product may be sold without bearing the following warnings: “Drinking alcohol causes liver disease” and “There is a direct link between alcohol and fatal cancers”. In addition, the requirement for a pregnancy warning can be fulfilled by using a specified pictogram. The quantity of grams of alcohol contained in the product and the number of calories contained in the alcohol product must also be indicated.

Discussions in the WTO Committee on Technical Barriers to Trade

On 6 February 2023, Ireland had notified the Public Health (Alcohol) (Labelling) Regulations to the  WTO’s Committee on Technical Barriers to Trade (hereinafter, TBT Committee). A number of WTO Members then raised concerns over the new regulations.

At the March 2024 TBT Committee meeting, the US raised a Specific Trade Concern, asking “how labelling alcohol content in grams would benefit the consumer when the longstanding practice of offering this information as alcohol by volume (abv) percentage is well-established”. Mexico asked for “The technical and scientific evidence forming the basis for the wording of the health warnings”. Colombia stated that “these regulations have an impact on trade by generating the need for specific labels to be produced for the Irish market, affecting opportunities to redirect products within the European market”. New Zealand highlighted “that wine has a very long shelf-life and there may be old, and high-value, stock already in trade (such as from older vintage stock in cellars) that does not display Ireland’s required warnings and energy information” and asked how Ireland “intends to ensure these regulations do not unintentionally prohibit trade of such old stock”.

With respect to stock already in trade, irrespective of the vintage, it appears that it must be labelled under the new rules, which apply to all products “sold” in Ireland. Speaking on behalf of Ireland, a representative from the European Commission (hereinafter, Commission) denied that businesses would be required to produce specific labels for Ireland, noting that the required labelling information could be placed on the products with a sticker. In fact, Regulation 10(1)(b) of the Public Health (Alcohol) (Labelling) Regulations provides, in relevant part, that “the health warnings, health symbol and health information on the container of an alcohol product shall be – […] included on a sticker affixed to the container of the alcohol product”.

At an earlier TBT Committee meeting in 2023, Ireland was accused of requiring health warnings that were not based on objective scientific evidence. However, at the same meeting, a representative from the WHO had stated that the WHO’s International Agency for Research on Cancer (IARC) had categorised alcohol as a group 1 carcinogen. To counter common beliefs that low or moderate levels of alcohol consumption are safe or even beneficial, the WHO also informed the meeting that no level of alcohol consumption could be considered safe for health.

WHO report on Alcohol health warning labels: a public health perspective for Europe

On 17 February 2025, the WHO Regional Office for Europe published a report on “Alcohol health warning labels: a public health perspective for Europe”, which states that, in the EU, the per capita alcohol consumption among adults in 2019 was twice the world average, with one in 19 adults dying from alcohol-attributable causes, and three out of every 10 alcohol-attributable deaths due to cancers. The WHO endorses alcohol labelling as a policy option to reduce alcohol-related harm.

According to the WHO, this can involve providing information on the packaging about alcohol content, ingredients, nutritional information, and health warnings. The report situates health warning labels within the broader context of alcohol policy, highlighting their roles in raising risk awareness, and decreasing product appeal. The report notes that cancer-specific warnings are more relevant and likely to prompt discussions about alcohol risks and encourage reconsideration of alcohol consumption.

The report also addresses digital information provision, such as QR codes, concluding that it could not replace on-label information without losing message reach. According to the WHO, research involving nearly 20,000 participants showed that explicit cancer warnings on labels significantly increased awareness and discouraged consumption.

Regarding the WHO report, the trade association SpiritsEurope commented that “Numerous peer-reviewed publications have shown health warning label to be rather ineffective in inducing behaviour change, particularly among high-risk drinkers. Given this comparatively weak foundation, imposing health warning labels is ultimately a political decision, rather than one based on robust data”.

WTO law consistent?

Article 2.2 of the TBT Agreement requires that “technical regulations” be not “more trade-restrictive than necessary to fulfil a legitimate objective” and that such legitimate objective would be, inter alia, “the protection of human health”.

The labelling regulations apply to all alcoholic products sold in Ireland, whether produced locally or imported, which suggests that there is no discrimination. With respect to the objective pursued, the Government of Ireland argues that the high volumes and harmful patterns of alcohol consumption were responsible for an enormous burden of public health harms and healthcare costs. The main question appears to be whether less trade-restrictive measures or approaches would be available, such as information campaigns to encourage the population to drink healthily.

Towards fragmentised or harmonised alcohol labels in the EU?

During the discussions in the WTO, some WTO Members stressed the importance of having harmonised regulations across the EU’s Single Market. While there are plans for EU-wide regulations that would include labels for alcoholic beverages, the Commission representative stated in the March 2024 TBT Committee meeting that the work on the revision of the EU’s Regulation on Food Information to Consumers, including the labelling of alcoholic beverages, was on-going.

In fact, in the 2022 Europe’s Beating Cancer Plan, the Commission had announced that it would look into a proposal for health-related information on alcoholic beverages. It must also be noted that Ireland is not the first EU Member State to introduce additional labelling rules on alcoholic beverages (see Trade Perspectives, Issue No. 3 of 13 February 2023), but which do not concern cancer warnings. Notably, France and Lithuania have introduced labelling requirements concerning warnings about the harm of alcohol to pregnant women and their unborn children.

In 2022, the Government of Ireland had notified the draft Public Health Alcohol Labelling Regulations to the Commission under the EU’s Technical Regulation Information Service (TRIS) procedure. During the consultation process on the draft Public Health Alcohol Labelling Regulations, conducted under the TRIS procedure, six EU Member States submitted comments, and eight EU Member States issued detailed opinions. At the same time, numerous industry representatives also issued comments in the context of the TRIS procedure, essentially arguing that Ireland’s national attempt to regulate labelling could fragment the EU’s Single Market by creating different labelling requirements for companies operating in the sector. The TRIS consultation process formally ended on 22 December 2022, with no objections raised by the Commission, which procedurally amounts to a tacit approval (see Trade Perspectives, Issue No. 3 of 13 February 2023).

Measures of an EU Member State that are capable of hindering, directly or indirectly, trade within the EU are to be considered as measures having an effect equivalent to quantitative restrictions within the meaning of Article 34 of the Treaty on the Functioning of the European Union (TFEU). Such measures may, however, be justified on grounds of the protection of health and life of humans, under Article 36 TFEU, but only if such measures are appropriate for securing the achievement of the objective pursued and if they do not go beyond what is necessary in order to attain it. Less strict measures than cancer warnings appear to be available like the examples of France and Lithuania show, with warnings about the harm of alcohol to pregnant women and their unborn children.

In opposition to the findings of the WHO, digital information provision, such as QR codes, could provide additional information on the risks of alcohol consumption, replacing on-label information without losing message reach. The new rules applicable from next year in Ireland appear to be unjustified and disproportionate barriers to the free movement of goods, while the Commission has already announced its intention to work on mandatory rules for the labels of alcoholic beverages. Further fragmentation of the EU market, which undermines the EU harmonisation approach, should be avoided.

In order to provide businesses time to adapt to the new rules, a three-year transitional period had been established, with enforcement commencing in May 2026. Certain industry representatives indicated that the new labelling requirements could deter international producers from supplying to the Irish market, potentially reducing product availability and affecting local businesses. Stakeholders should monitor further discussions within the TBT Committee, and developments in the EU regarding the labelling of alcoholic beverages, while businesses should familiarise themselves with the new rules and prepare for their entry into operation on 22 May 2026.

For any additional information or legal advice on this matter, please contact Ignacio Carreño Garcia

Recently adopted EU legislation

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Amanda Carlota, Ignacio Carreño García, Tobias Dolle, Alya Mahira, Caitlynn Nadya, Stella Nalwoga, and Paolo R. Vergano contributed to this issue.

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