Unpacking the Proposed Omnibus Amendment to EU Sustainability Frameworks

• The first simplification omnibus packages released by the European Commission on 26 February propose a drastic reduction in the scope of mandatory sustainability reporting, setting thresholds below those that were in place before the adoption of the Corporate Sustainability Reporting Directive (CSRD). A significant share of companies that are in the process of publishing their first statutory reports under the regulation, or have already done so, would fall out of scope.
• The Commission also proposes a flexible opt-in approach to Taxonomy disclosures for companies with <€450m turnover.
• The first omnibus legislations propose significant cutbacks to the obligations set out in the Corporate Sustainability Due Diligence Directive (CSDDD), and risk denting its claim to becoming the new global standard for mandatory environmental and human rights due diligence.
• If adopted, these and other proposed changes might substantially weaken the EU’s sustainable finance toolbox under the Green Deal.
• The European Commission’s simplification omnibus packages are legislative proposals under a broad strategic initiative aimed at strengthening the competitiveness of European companies. The Commission’s proposals are subject to approval by the EU’s co-legislators, the European Parliament and the Council, and is likely to be modified during negotiations.

Between late 2024 and early 2025 the European Commission developed a framework and agenda aimed at boosting competitiveness of European companies. The action plan includes, among others, efforts to significantly reduce the administrative burden on EU companies – by at least 25% for all companies and by at least 35% for SMEs. The EU’s sustainability reporting and due diligence regulations are one of the focus areas of this broader simplification initiative. While simplification and strengthened implementation guidance is universally welcome, concerns have been raised about the risk for undermining the EU’s competitive position linked to sustainability leadership.

The Commission’s proposals are set out through a series of omnibus packages and other measures, including the two first simplification omnibus packages released on 26 February. These set out amendment proposals to sustainability reporting, sustainability due diligence and taxonomy disclosures, and proposed changes to the CSRD and CSDDD timelines. Any amendments to level 1 directives and regulations, such as the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD), proposed through an omnibus legislation must be adopted through the ordinary co-decision legislative procedure, requiring approval by the European Parliament and the Council. Any amendments to level 2 delegated acts, regulatory or technical implementing standards, such as the Taxonomy Art. 8 rules and the European Sustainability Reporting Standards (ESRS), can be updated by the Commission with the help of consultative bodies without the need of approval from the Council and Parliament. To address legal uncertainty and mitigate the risk of companies incurring unnecessary costs for complying with changing regulations, the Commission has called on co-legislators to accelerate their review.

Since 2018, the EU has introduced a set of complementary sustainability regulations for companies and financial products to support the goals of the European Green Deal. Key regulations include the EU Taxonomy Regulation, the Sustainable Finance Disclosure Regulation (SFDR), the CSRD and its ESRS, and the CSDDD. While interlinked and mutually supportive, these regulations were developed and adopted through separate consultations and rolled out with distinct application timelines.

Sustainability reporting, while central, represents only one aspect of this set of regulations designed to provide a comprehensive framework for sustainable business and finance. The reporting rules under the CSRD are particularly important to investors and financiers, encompassing both ESRS disclosures (material impacts, risks, and opportunities) and EU Taxonomy disclosures (share of sustainable economic activities). Access to consistent and comparable data regarding companies’ sustainability commitments and performance is a prerequisite for driving capital toward green and socially responsible activities and businesses, while mitigating the risk of greenwashing. This perspective is reflected in investor statements issued in response to the reopening of the regulations within the context of a broader European Commission reform initiative aimed at strengthening the competitiveness of European companies.

Notwithstanding the importance of the frameworks for the EU’s agenda for sustainable economic growth, the considerable breadth and depth of disclosure requirements have proven challenging for “wave one” companies who must publish their first statutory CSRD-aligned Sustainability Statements in 2025. Concerns have also been raised about the ability of smaller companies to align with the disclosure requirements, albeit simplified.

The cost of compliance with the first set of sector-agnostic disclosure standards (ESRS Set 1) has been estimated at €680,000 for a large company in the first group. This cost reflects the granularity of information to be gathered and the additional costs for independent assurance. The overall number of Set 1 datapoints – around 1,100 – has received much attention. However, this includes nearly 300 voluntary datapoints, and over 600 of those remaining are subject to a company’s determination of materiality. This process entails identifying the most salient sustainability impacts, risks and opportunities (IROs) and related significant and decision-useful information. Material IROs must be identified through a structured, well-documented materiality assessment. In the absence of sector-specific guidelines, companies have sought guidance from early voluntary and first mandatory reports published by industry peers.

Early preparers have raised concerns about disproportionate assurance costs, partly due to uncertainty surrounding requirements. While the European Commission must publish limited assurance standards no later than October 2026, limited assurance is mandatory from year one.

Granular Do No Significant Harm (DNSH) criteria are arguably one of the more contentious aspects of EU Taxonomy alignment assessments. Several stakeholders, including the Commission’s advisory body, the Platform on Sustainable Finance, have called for a comprehensive review and significant simplification of DNSH criteria. The Platform also recommends reducing the reporting burden under Art. 8 disclosures by further clarifying and, where relevant, simplifying the rules for calculating financial KPIs, including through the introduction of a materiality threshold. As with ESRS disclosures, the lack of guidance around the application of limited assurance to Art. 8 disclosures is perceived as a significant challenge and cost-driver.

The scope and content of the obligations set out in the due diligence directive adopted in May 2024 is the result of lengthy negotiations between the European Parliament and the Council, with significant changes to the original proposal presented by the European Commission in early 2022. The following areas received particular attention during the negotiations, with substantial concessions made to the original ambition of the regulation: general scope thresholds; the inclusion in scope of the financial sector, civil liability provision demanding victims get compensation for damages resulting from an intentional or negligent failure to carry out due diligence; and the obligation to adopt and put into effect a climate transition plan. The European Commission must develop general due diligence guidelines by mid-2027, when the rules start to apply to the first group of companies.

Concerns have been raised regarding the disproportionally high burden on smaller companies under the EU’s sustainability reporting requirements and the trickle-down effect of both reporting and due diligence obligations on companies in the value chain. Several provisions in the CSRD and CSDDD seek to mitigate this burden. These include the simplified ESRS for mandatory sustainability reporting by listed SMEs (draft ESRS LSME) and the voluntary sustainability reporting standard for non-listed micro, small and medium enterprises (VSME), and a CSRD provision requiring larger companies to exercise restraint in requesting information from smaller companies in their value chain.

While maintaining the CSRD’s core double materiality approach, the first two omnibus packages released on 26 February propose far-reaching changes to the scope and content of sustainability disclosure and due diligence rules. Key proposals include the following:

• Reduction in the scope of mandatory reporting by 80%, significantly narrower than even under the Non-Financial Reporting Directive (NFRD), which was replaced by the more ambitious Corporate Sustainability Reporting Directive (CSRD).
• Taxonomy disclosures under CSRD-aligned reports as an “opt-in” for companies with <€450m if they claim Taxonomy-alignment or partial Taxonomy-alignment, and a new delegated act setting out criteria for “partial” alignment.
• A two-year delay of entry into application of reporting requirements for CSRD “wave 2” companies falling out of scope under the current proposal, to mitigate the risk for companies to incur unnecessary costs.
• Addressing assurance burden through advanced guidance and the removal of future reasonable assurance requirements.
• Substantial limitation of the reach of due diligence obligations, with a focus on own operations, subsidiaries and tier 1 suppliers.

Find below an overview of key details of the proposed changes.