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EU Omnibus proposal risks dismantling ESG protections for smallholder farmers

Civil society organisations are calling on policymakers to reject proposed changes to EU sustainability legislation, saying they pose a risk to protections for smallholder farmers.

The European Commission’s Omnibus Simplification Package, published on 26 February, sets out amendments that would affect the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD).

While not yet adopted, the proposal is expected to go to a European Parliament vote today and must also be approved by the Council of the EU.

If passed, it would roll back corporate responsibility rules by restricting due diligence obligations to direct suppliers only and exempting most mid-sized companies from CSRD reporting.

Civil society organisations, including Solidaridad, are calling on EU policymakers to reject the proposed changes, which they say would remove essential protections for smallholder farmers and weaken supply chain transparency in the food and agriculture sector.

Bram Verkerke, senior communications specialist at Solidaridad, told Ingredients Network that the proposal would “eliminate full supply chain responsibility”.

He said that companies would no longer be legally required to assess, prevent, or remedy human rights violations, environmental harms, or structural poverty in the upstream supply chain.

“Farmers, processors, and most manufacturers are no longer in scope of the regulation when the EC Omnibus proposal is adopted,” he said.

Loss of supply chain safeguards

One of the most contentious elements of the proposal is the removal of provisions that prevent companies from ending commercial relationships with suppliers unless all remediation options have been exhausted.

Verkerke said this protection was vital for smallholder farmers, who are often deemed high-risk suppliers and therefore especially vulnerable to exclusion.

“Smallholders are oftentimes considered high-risk suppliers by companies in scope, and therefore over-exposed to cut-and-run,” he said. “If the CSDDD does not require disengagement to be responsible and used as a last resort, companies may cut ties prematurely, threatening smallholders’ livelihoods and market access.”

The existing CSDDD text requires companies to work with suppliers to address risks before terminating contracts. The revised version removes these safeguards and introduces the option of “suspension”, a term Verkerke said is undefined and could be interpreted as equivalent to termination.

Reduced reporting scope under CSRD

The CSRD, which was originally set to apply to companies with more than 250 employees, would under the omnibus proposal be limited to companies with over 1,000 employees, turnover above €50 million, or total assets exceeding €25 million.

According to Commission figures, this change would remove up to 82% of previously in-scope companies.

Reporting deadlines would also be delayed. Companies that were due to begin reporting in 2026 would now be expected to do so in 2028. Sector-specific standards will be cancelled, and the transition from limited to reasonable audit assurance halted.

The European Commission argues that the proposal will reduce the regulatory burden on smaller firms and improve competitiveness. It estimates total administrative cost savings of €6.3 billion, with an additional €350 million in reduced compliance costs for SMEs.

Sectoral impacts in food and agriculture

Solidaridad said the rollback would disproportionately affect smallholder farmers working in cocoa, tea, and other commodity supply chains.

“For more than 50% of cocoa and tea farmers in World Bank datasets, household income would need to double in order to earn a living income,” said Verkerke, citing research produced in collaboration with Wageningen University.

Without enforceable obligations for buyers to engage with upstream suppliers, smallholders face increased risk of exclusion from European supply chains.

Verkerke said the current CSDDD recognises living wage and living income as human rights, and removing these references would strip the regulation of its core impact.

“Eliminating most of the supply chain from corporate due diligence means those actors facing the biggest sustainability challenges will most likely see no benefit from CSDDD,” he said.

Solidaridad is urging members of the European Parliament and Council to reject the proposal and preserve full supply chain due diligence obligations.

It argues that the CSDDD, as originally adopted, recognises the specific vulnerabilities of the world’s 600 million smallholder farmers and includes legal tools to address structural poverty and environmental degradation.

Stakeholder pressure remains despite deregulation

Although the proposal would ease formal reporting requirements, surveys conducted after the announcement of the ESG policy shift indicate that most companies plan to continue sustainability reporting voluntarily.

Sustainability platform Coolset found that 90% of businesses intend to keep disclosing ESG data. Of these, 67% will follow CSRD standards voluntarily or because they remain in scope, while 14% plan to transition to the less stringent Voluntary Standard for SMEs (VSME).

Nine percent are considering switching to other frameworks, such as the Global Reporting Initiative. Eighty-five percent of respondents cited ongoing pressure from investors, customers and financial institutions as a reason for maintaining ESG disclosures.

PwC’s 2025 State of Decarbonization report, published in March this year, also highlighted the growing importance of Scope 3 data across the food and beverage industry. Many ingredient suppliers likely will continue to receive ESG data requests from their buyers, particularly for Scope 3 emissions reporting, which covers indirect impacts such as raw material sourcing.

Verkerke said many large companies already understand the business case for stronger sustainability standards.

“Full supply chain due diligence is crucial for stable international trade relations and supply chain resilience,” he said. “That’s why many big corporations support CSDDD as it is, including multinationals in the Cocoa Coalition.”