The Omnibus Simplification Package: the European Commission proposes changes to Corporate Sustainability regulation in the Union

Introduction

On 26 February 2025, the European Commission published its First and Second “Omnibus Simplification Package” proposals to simplify rules on sustainability and EU investments (the Omnibus Package or proposals).

Following last year’s Draghi report and the Competitiveness Compass launched in early 2025, the Omnibus Package is the first of several legislative packages which aim to boost competitiveness and unlock additional investment capacity. The sustainability Omnibus promises to do so by streamlining EU sustainability reporting and due diligence requirements for companies operating in the EU. Further detail on the background to the sustainability Omnibus Package was described in our update on 11 February 2025.

The Omnibus Package is part of the Commission’s broader simplification and implementation agenda and proposes various amendments to the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), the EU Taxonomy and the Carbon Border Adjustment Mechanism (CBAM).

The core objectives of the proposals are to reduce regulatory burdens on smaller companies, make it easier for companies in scope to comply with regulations, and simplify and streamline EU processes, all with a view to supporting the EU's ambition of a sustainable transition towards enhancing EU companies' competitiveness.

Background: drive for competitiveness in a difficult geopolitical context

The EU’s ambition to deliver simplification is not new. The Omnibus Package follows the European Commission’s Competitiveness Compass for the EU (launched 29 January 2025), the Budapest Declaration on the New European Competitiveness Deal (published 8 November 2024), and Mario Draghi’s report on competitiveness (published 9 September 2024), all of which championed the need for a simplified regulatory framework.

The Omnibus Package proposals sit within this broader context and represent the mechanism by which the Commission hopes to achieve its target of reducing the administrative burden by 25% (and at least 35% for SMEs) by the end of its mandate in 2029.[1]

Promoting competitiveness appears to have become even more urgent in the current geopolitical context, characterised by increasing uncertainty and risks. The Explanatory Memorandum to the Commission’s proposal on amending the CSRD and CSDDD (Proposal COM(2025)81 – see below for further details) notes “The CSRD and the CSDDD are now being implemented in a new and difficult context. Russia’s war of aggression against Ukraine has driven up energy prices for EU undertakings. Trade tensions are rising as the geopolitical landscape continues to shift. The different approach undertaken by some other major jurisdictions regarding the regulation of corporate sustainability reporting and due diligence raises questions about the effects of these laws on the competitive positioning of EU companies. The ability of the Union to preserve and protect its values depends amongst other things on the capacity of its economy to adapt and compete in an unstable and sometimes hostile geopolitical context”.[2]

The Explanatory Memorandum also states that “competitiveness, tied closely to innovation, efficiency, and sustainability, is essential for fostering economic resilience and ensuring EU businesses can thrive in a rapidly evolving global landscape. The current economic environment, characterized by rapid technological advancements, shifting consumer demands, and increased global competition, necessitated swift action to safeguard the EU’s competitive edge”.[3]

Clearly the Commission is concerned about not allowing EU businesses to be hampered by overburdensome compliance requirements to remain profitable in a changing world.

What’s in the Package?

The Omnibus Package itself comprises several separate measures addressing various directives and proposals to be implemented across a number of years.

The key principles contained within the Omnibus proposals relate to:

• Reducing the number of companies within the scope of the CSRD;
• Harmonising the CSRD and CSDDD;
• Reducing “trickle down” reporting requirements from larger to smaller undertakings;
• Giving companies more time to adjust to reporting and due diligence obligations; and
• Seeking to clarify competencies between member states and the EU.

Source:  Simplification and Implementation, European Commission

As shown above from the European Commission website, the Omnibus Package comprises a “First Omnibus package on sustainability” and a “Second Omnibus on investment simplification”. A “Third Omnibus package”, which will focus on small mid-caps, is expected in Q2 2025.

The First and Second Omnibus packages together encompass five different measures:

First Omnibus:

1. A proposal for a Directive amending the CSRD and the CSDDD (as well as relevant provisions of the Audit Directive and Accounting Directive);
2. A “stop the clock” proposal, namely a proposed Directive which postpones the application of all reporting requirements in the CSRD for companies that are due to report in 2026 and 2027 (so-called “wave 2” and “wave 3” companies – see ‘Key terminology’ table below) by two years and which postpones the transposition deadline and the first wave of application of the CSDDD by one year to 2028;
3. A proposal for a Regulation amending the Carbon Border Adjustment Mechanism Regulation; and
4. A draft Delegated Act amending the Taxonomy Disclosures and the Taxonomy Climate and Environmental Delegated Acts, subject to public consultation (this is as well as proposed amendments to the CSRD regarding Article 8 Taxonomy reporting).[4]

Second Omnibus:

5. A proposal for a Regulation amending the InvestEu Regulation.

What are the proposed changes to the CSRD and CSDDD?

The Omnibus Package proposals aim to simplify the CSRD in three main ways:

• Reducing the number of companies in scope to “large undertakings” with over 1,000 employees and either a turnover above EUR 50 million or a balance sheet above EUR 25 million (this represents a reduction in scope of CSRD by approximately 80%);[5]
• Adopting a delegated act to revise the first set of European Sustainability Reporting Standards (ESRS), by (i) removing those deemed least important for general purpose sustainability reporting, (ii) prioritising quantitative datapoints over narrative text, and (iii) further distinguishing between mandatory and voluntary datapoints;[6] and
• Postponing by two years the application of reporting requirements for “wave 2”[7] and “wave 3” companies.[8]

Beyond simplification, the Commission’s proposal also aims at improving consistency with other EU legislative texts. The revision of the CSRD thresholds would allow for a closer alignment with the CSDDD[9].Further, the European Commission’s commitment to revise the first set of ESRS will be part of an objective to enhance consistency with other EU pieces of legislation[10].

Importantly, and despite speculation that the Commission could amend it, the double materiality standard will continue to apply to CSRD reporting requirements. Double materiality means that companies are required to report both internal sustainability-related risks and external impacts that may occur as a result of their operations.

However, the proposals provide that in-scope companies should not seek to obtain information that goes beyond that set out in a series of voluntary standards from companies in their value chain that do not have more than 1,000 employees.[11] This is subject to any additional sustainability information that is “commonly shared” between companies in the sector concerned. These voluntary standards are to be developed by the Commission and would likely be based on the VSME standard developed by EFRAG[12], i.e. a voluntary standard intended to provide guidance to small and medium enterprises. This is an example of the Commission’s efforts to reduce “trickle down” reporting requirements on smaller companies.

The Omnibus Package proposals aim to clarify and simplify the CSDDD, reducing the compliance burden, by:

• Tailoring obligations in relation to indirect business partners; this will limit entities’ due diligence requirements to “Tier 1” business partners (see ‘Key terminology’ table below), relieving the requirement to assess impacts at an indirect business partner level, unless the company possesses “plausible information” that suggests that adverse impacts have, or may have, arisen at that level;[13]
• Reducing the frequency of periodic monitoring of due diligence arrangements (from every one to five years);[14] and
• Clarifying (narrowing) stakeholder engagement by excluding certain parties, including consumers, from the definition of ‘stakeholders’.[15]

The current obligation under the CSDDD to “adopt and put into effect a transition plan for climate change mitigation” will also be amended, replacing the obligation to “put into effect” a transition plan with an obligation to “adopt” a transition plan and outline implementing actions the company is planning or has already undertaken.[16]

The proposals would also remove the duty on companies to terminate business relationships with companies in their supply chains who have failed to address (actual or potential) adverse impacts of their practices on the environment or human rights.[17] However, if a company has exhausted all due diligence measures to address such impacts, it must work towards a solution with its business partner, and as a last resort the business relationship will need to be suspended.

Provisions on EU-wide civil liability currently contained within the Directive would also be removed under the proposals.[18] Companies would instead be held liable under relevant national laws if they fail to comply with CSDDD requirements.[19]  Additionally, the requirement to base pecuniary penalties on a minimum of 5% of the world’s turnover has also been removed. Instead, the Commission will develop fining guidelines in collaboration with Member States.[20]

How are the EU Taxonomy and CBAM affected?

Included within the proposals are amendments to certain obligations under the EU Taxonomy Regulation. In-scope companies with more than 1,000 employees and a net turnover below EUR 450 million would benefit from a flexible “opt-in” Taxonomy regime. The level of reporting required would be determined by whether the company claims that their activities are aligned or partially aligned with EU Taxonomy or make no such claims.[21]

As noted above, the Omnibus Package also includes a draft Delegated Act amending the:

• Taxonomy Disclosures Delegated Act;
• Taxonomy Climate Delegated Act; and
• Taxonomy Environmental Delegated Act.

The draft Act is currently open for feedback until 26 March 2025.  As delegated acts, these amendments can be passed without having to go through the same legislative process as the amendments for CSRD, CSDDD and CBAM, subject to non-objection from the EU Parliament and Council.

The Package also proposes major amendments to the CBAM Regulation, including:

• Introducing a mass-based threshold (50 metric tonnes per importer), which would exempt most importers from their obligations under the Regulation;[22] and
• Simplifying the compliance burden on importers still in scope, including by delaying the deadline for submitting CBAM declarations to 31 August each year (from 31 May).[23]

Alignment with EU policies and across Member States

There is a clear focus on consistency with other Union policies, including preserving elements of the EU Green Deal, in line with Competitiveness Compass objectives, such as the avoidance of fragmentation of national rules and proportionality.

An important change would be to prevent Member States from imposing more stringent requirements than those imposed by CSDDD in relation to certain areas, including:

• Duties to identify and address adverse human rights and environmental impacts; and
• Complaints and notification mechanisms and procedures.[24]

The rationale behind this change is to ensure a level playing field and reduce the potential for variation across the EU, facilitating greater harmonisation.

Impacts on companies outside the EU

The changes suggested by the Omnibus Package are also significant to companies outside Europe operating within the EU. Affected companies may have to reconsider their compliance strategies in order to ensure compliance with the amended reporting and due diligence requirements.

Under the proposal, non-EU companies will be in scope if they generate a net turnover in the EU exceeding EUR 450 million for the last two consecutive financial years and have either:

• a large EU subsidiary (as defined by Article 3(4) of the Accounting Directive i.e., exceeding at least two of the following: 250 employees on average; EUR 25 million total balance sheet; EUR 50 million net turnover); or
• an EU branch generating a net turnover of more than EUR 50 million in the preceding financial year.[25]

Importantly, because the 1,000-employee threshold does not apply here, non-EU parent undertakings could be brought into scope of CSRD by an EU subsidiary, even if that subsidiary is not itself in scope.[26]

The potential extra-territorial effect of the EU legislation is a source of concern for some, including the US, where anti-ESG sentiment is growing. The Prevent Regulatory Overreach from Turning Essential Companies into Targets Act (PROTECT USA Act) proposed by US senator Bill Hagerty on 12 March 2025, is one response to the CSDDD and would, if passed, prohibit “entities integral to the national interests of the United States” (which includes companies in the mining, manufacturing (including of arms) and fossil fuels sectors)  from being forced to comply with any foreign sustainability due diligence regulation.

Reception of the proposed Omnibus Package

The Omnibus Package has been met with concerns from various civil society actors and NGOs (including, for instance, the European Coalition for Corporate Justice, a coalition of more than 480 NGOs, trade unions and academic institutions throughout Europe) that the proposed reforms go too far in reducing companies’ obligations  and stymie efforts to meaningfully address issues relating to the environment, climate change and human rights.[27]

The response from companies has been divided. As most of the proposals involve reducing reporting and due diligence requirements, some economic and political stakeholders  (such as the European Fund and Asset Management Association) have reacted positively, seeing them as bringing a welcome reduction in regulatory burdens.

Others have accused the Commission of creating significant regulatory uncertainty. Even before the Omnibus Package was released, a number of chief sustainability officers of French companies urged the Commission to maintain strong ESG standards and called for policy certainty and other companies warned against the risks of revisiting existing legislation.

However, a recent report finds that certain EU countries are pushing for yet further changes to be made, with France suggesting that the CSDDD threshold be moved to 5,000 employees and the Netherlands pushing for the delays to the application of CSRD to be extended to wave 1 companies. The European Parliament, which is now due to vote on the “stop the clock” proposal of the Omnibus Package on 1 April 2025, is also divided, suggesting that any consensus may require time and concessions.

Where next?

Since the publication of the Omnibus Package on 26 February 2025, there have been questions and speculation around the adoption timeline.

The next step is for the European Parliament and Council to review and consider whether to pass the proposals as they stand or suggest further revisions and adjustments, a process which the Commission urges the co-legislators to handle with priority. The proposal amending the scope of CSRD and CSDDD (1, above) and the “stop the clock” proposal (2, above) have both been proposed by the Commission under the ordinary legislative procedure, which could take months.

It seems likely that the two proposals will move at different speeds. Indeed, early signs suggest that this will be the case, with the European People’s Party (EPP) (the largest group in the European Parliament) reportedly pushing for a fast-track process for the “stop the clock” proposal, which is currently set to be transposed by the Member States by 31 December 2025[28]. This is all subject to prompt approval by the European Parliament and the Council of the European Union.

It is likely that the proposal amending the reporting requirements under CSRD and CSDDD will be subject to a longer process. Conservative estimates suggest that this proposal may not be adopted until Q3 2026.

The key point to remember is that the Omnibus Package and the changes that it introduces remain a proposal as of now. This leaves a potential for further developments in the coming months as it is scrutinised, which could prolong its passing.

While the European Commission has requested that Parliament prioritise the passing of the Omnibus Package, and fast track it through the ‘urgency procedure’, the timeline is uncertain, with further information to come in the next few months.

Key terminology:

Term	Definition
“Wave 1” company	Relates to large undertakings and parent undertakings of a large group that are Public Interest Entities (PIEs) exceeding: 500 employees on average and; EUR 25 million total balance sheet; and/or EUR 50 million net turnover.[1]   PIEs are defined as: companies listed on an EU regulated market; credit institutions; insurance undertakings; undertakings designated by a Member State as PIEs.[2]   [1] Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022 amending Regulation (EU) No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU, as regards corporate sustainability reporting (CSRD), Article 5(2)(a) [2] Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, amending Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 83/349/EEC (Accounting Directive), Article 2(1)
“Wave 2” company	Relates to large undertakings and parent undertakings of a large group that exceed at least two of the following three criteria: EUR 25 million balance sheet total EUR 50 million net turnover 250 employees on average during the financial year.[1]   Note: for parent undertakings of a large group, these criteria must be satisfied on a consolidated basis during the financial year.   [1] CSRD, Article 5(2)(b)
“Wave 3” company	Relates to listed small and medium enterprises (SMEs) that do not exceed two of the following three criteria and are not micro-undertakings:[1] EUR 25 million balance sheet total EUR 50 million net turnover 250 employees on average during the financial year.[2]   Also relates to: small and non-complex financial institutions (that are large or listed SMEs); and captive insurance and reinsurance undertakings (that are large or listed SMEs).[3]   [1] Micro-undertakings are defined as undertakings which on their balance sheets do not exceed the limits of at least two of the following three criteria: (a) EUR 450,000 balance sheet total; (b) EUR 900,000 net turnover; and (c) 10 employees on average during the financial year. See Accounting Directive, Article 3(1), as amended by CSRD [2] CSRD, Article 5(2)(c) [3]  CSRD, Article 5(2)(c)
“Tier 1” (in the context of a company’s supply chain)	Refers to a company’s direct business partners.[1]   [1] COM(2025)81, Recital 21
“Tier 2”	Refers to the suppliers to tier 1 suppliers
“Tier 3”	Refers to the suppliers to tier 2 suppliers