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Analysis & trends
Omnibus Proposals: Towards a Simplification of the European Regulatory Framework for Sustainability
On February 26, 2025, the European Commission introduced two directives aimed at simplifying sustainability reporting and due diligence obligations for companies.
These proposals are part of the “Omnibus I and II” legislative package, which includes amendments to Directive (EU) No. 2022/2464 of December 14, 2022, as regards corporate sustainability reporting (“CSRD“) (1.), Directive (EU) No. 2024/1760 of June 13, 2024, on corporate sustainability due diligence(“CS3D“) (2.), the Carbon Border Adjustment Mechanism (“CBAM“), provisions of Regulation (EU) No. 2021/523 of March 24, 2021, establishing the InvestEU program, and provisions of the delegated acts supplementing Regulation 2020/852 on creating a framework for promoting sustainable investment.
The European Commission’s stated aim is to “square the EU’s ambition towards a sustainable transition with enhancing EU companies’ competitiveness“, by reducing “overlapping, unnecessary or disproportionate rules that are creating unnecessary burden for EU businesses” in a tense competitive and geopolitical context.[1]
The first proposal seeks to amend the substantive provisions of both the CSRD and CS3D, while the second proposal focuses on postponing the implementation dates of the requirements under these two directives.
1. Proposed amendments to provisions of the CSRD
The first proposal[2] aims to narrow the scope of the CSRD so that reporting requirements apply only to certain large companies, while ensuring that the sustainability reporting obligations imposed on large companies do not create unnecessary burdens for small and medium-sized enterprises within their value chains.
It notably includes the following key measures:
- Reducing the scope of the directive to include only the largest European companies or groups employing more than 1,000 people and with a turnover exceeding €50 million or a balance sheet value greater than €25 million[3];
- Eliminating sector-specific ESRS standards to reduce the number of disclosure requirements and the reporting burden.
- Reducing the “trickle-down effect” by mandating a standard reporting framework for voluntary use by SMEs (VSME standard). It is also proposed that the VSME standard should define the legal limit of information that companies subject to the CSRD may request from companies not subject to the CSRD.
- Removal of reasonable assurance: the proposal has abolished the transition from a limited assurance requirement to a reasonable assurance requirement under the CSRD.
- Replacing the adoption of limited assurance standards originally planned for 2026 with targeted assurance guidelines for the same year.
The second proposal[4] recommends a two-year delay in the implementation of the new sustainability requirements for companies in the second and third waves, with those companies expected to publish their reports for the first time in 2026 and 2027, respectively.
In a second phase, the reporting standards known as ESRS will be revised in order to significantly reduce the number of data points, clarify the application of the materiality principle and simplify the structure and presentation of the standards. The Commission plans to adopt the revised ESRS as soon as possible, but no later than six months after the entry into force of the amendments proposed in the Omnibus package.
According to the Commission, the reduced scope of the CSRD and the simplification of the reporting requirements, including the simplification of the ESRS, will particularly benefit large unlisted companies and SMEs. The proposed measures are expected to generate substantial savings for businesses (estimated at around €4.4 billion a year).[5]
2. Proposed amendments to provisions of the CS3D
The first proposal for a directive[6] aims to simplify due diligence obligations for large companies, while reducing the “trickle-down effects” on SMEs. In particular, it provides for:
- Relaxing the obligation to systematically carry out in-depth assessments of adverse impacts that occur or may occur in often complex value chains at the level of indirect business partners and only requiring full due diligence with respect to the value chain beyond direct (tier 1) business partner in cases where the company has plausible information suggesting that adverse impacts have arisen or may arise there;
- Simplifying due diligence obligations, including reducing the frequency of periodic assessments and updates from one year to five years, rationalizing the number and quality of involved stakeholders, and removing the obligation to terminate the business relationship as a last resort in cases of breaches by a commercial partner;
- Reducing the “trickle-down effect” by limiting the information companies reporting under the CSRD can request from their SME and mid-cap business partners to that specified in the CSRD’s voluntary sustainability reporting standards;
- Deferring the conditions of civil liability regimes to Member States;
- Prohibiting Member States from introducing a ceiling or limit on financial penalties in national law, which would prevent supervisory authorities from imposing the penalties stipulated in the Directive;
- Deleting the review clause concerning the inclusion of financial services in the scope of the Directive;
- Aligning the requirements for the adoption of climate transition plans with those of the CSRD and removing the requirement to put into effect the transition plan for climate change mitigation. Companies will now only be required to adopt a transition plan ;
- Harmonizing due diligence requirements to ensure a level playing field within the EU.
The second proposal[7] suggests extending the deadline for transposition to 26 July 2027, and postponing the first phase of implementation for the largest companies to 26 July 2028. On the other hand, publication of the Commission’s guidelines would be brought forward to July 2026.
According to the Commission, the simplification of these obligations will benefit both very large companies that fall within the scope of the directive (estimated at around 6,000 European companies and 900 non-European companies) and partners in their value chain, including SMEs and small and mid-cap companies.[8]
Conclusion
According to the European Commission, these proposed changes will help “create a favorable business environment” and help European companies save around €6.3 billion in annual administrative costs.[9]
The two proposed directives in the ‘Omnibus’ package will soon be reviewed by the European Parliament and the Council of the European Union.
