The European Commission publishes first Omnibus Package to simplify sustainability regulations

Executive summary

On 26 February 2025, the European Commission published the first Omnibus Package, which proposes to simplify the requirements of the Corporate Sustainability Due Diligence Directive 2024/1760 (CS3D), the Corporate Sustainability Reporting Directive 2022/2464 (CSRD) and the EU Taxonomy Regulation 2020/852 (Taxonomy Regulation). The overarching aim of the Omnibus Package is to reduce the administrative burden placed on in-scope companies and enhance EU competitiveness. The Omnibus Package also includes targeted changes to the Carbon Border Adjustment Mechanism (CBAM) to benefit SME importers.

The proposed changes made to the CSRD and CS3D go beyond what might have been expected from simplifying these regimes and look more like deregulation. Significant changes are made to each of the texts, including a large reduction in the number of companies in scope of CSRD reporting. The net effect of the changes on individual companies' sustainability activities is a more mixed picture and will require detailed analysis. The EU Staff Working Document that accompanies the Omnibus Package acknowledges a range of mechanisms that remain in place under these or other texts to achieve many of the same outcomes and appears to show that the overall ambition has not changed, despite the watering down of the means of achieving those ambitions. For example, while it will no longer be mandatory under CS3D for companies to go beyond tier 1 supplier due diligence, the changes provide for due diligence where a company has "plausible information" pointing to adverse impacts further down its supply chain. Similarly, the elimination of the requirement under the CS3D to 'put into effect' a transition plan for climate change mitigation does not remove the obligation to produce a plan, and for that plan to include credible implementation actions.

While the ambition of reporting obligations may have been sacrificed to balance growth with sustainability, the wider business case for sustainability remains alive for many global businesses. Meanwhile, company boards are now faced with the challenge of navigating an unclear ESG reporting landscape until all proposed changes have been agreed and implemented in Member States national laws.

Key changes in the Omnibus Package include:

CSRD

• The threshold criteria will be more closely aligned with those of the CS3D to remove 80% of companies from the scope of CSRD. In particular SMEs previously in scope of the Directive will no longer face reporting obligations.
• The 2-year postponement of reporting requirements for in-scope companies that are currently required to report in 2026 and 2027.
• The introduction of various provisions to reduce the trickle-down effects of CSRD by ensuring that sustainability reporting requirements on large companies do not burden smaller companies in their value chains and limiting the information those companies can be asked to provide to information requested for voluntary reporting standards that the Commission will adopt. The amount of information that may be requested as part of the value chain mapping by large companies under the CS3D will also be more limited.
• Adoption without delay of a delegated act to revise the EU Stainability Reporting Standards (ESRS), which were adopted by the European Commission in December 2023 and provide the detail of the datapoints that in-scope companies must report under CSRD. These revisions will substantially reduce the number of mandatory datapoints that in-scope companies need to report.

EU Taxonomy

• Changes to the Accounting Directive to reduce the burden of the EU Taxonomy reporting obligations, while limiting those obligations to the largest companies. Large companies that do not make Taxonomy alignment claims will not need to comply with the Taxonomy reporting rules. Companies will have the option of reporting on activities that are partially aligned with the EU Taxonomy.
• The European Commission has published a consultation on revisions to the EU Taxonomy Regulation alongside the Omnibus Package. Proposals include introducing a financial materiality threshold for Taxonomy reporting, reducing the reporting templates by about 70%, simplifying the most complex “Do no Significant Harm” (DNSH) criteria for pollution prevention and control related to the use and presence of chemicals that apply horizontally to all economic sectors under the EU Taxonomy, and adjusting the main Taxonomy-based key performance indicator for banks, the Green Asset Ratio (GAR).

CS3D

• Restricting the 'as a rule' due diligence requirements under CS3D to tier 1 suppliers. This is a significant reduction in ambition for the CS3D given that, as the EU Staff Working Document notes, critical supply chain risks tend to be greater further upstream or downstream of the value chain, particularly when dealing with SME companies.
• Reduction in the frequency of periodic assessments and monitoring of business partners from annually to every 5 years, with ad hoc assessments where necessary.
• The removal of EU-level civil liability and deletion of certain “access to justice facilitations”. This may result in litigation under CS3D being more fragmented, with victims suing companies individually rather than through bundled procedures.
• The removal of the requirement to 'put into effect' a transition plan for climate change mitigation, aligned with the Paris Agreement. Notably, the obligation to produce a plan is retained.
• The postponement of the application of sustainability due diligence requirements for the largest companies by one year (to 26 July 2028) and bringing forward the adoption of the guidelines on how to conduct due diligence, on transition plans and on how to share resources and information by one year (to July 2026).

What happens next?

The European Parliament and the Council of the EU are required to agree the text of the proposed Directives amending the CSRD, CS3D, the Accounting Directive 2013 (2013/34/EU) and the Audit Directive 2006 (2006/43/EC) (the Simplification Directives) and then to each adopt that text. This means the proposals published by the European Commission could be subject to further change.

To avoid the confusion created by the proposal to postpone the application of the Regulation on Deforestation-free Products (EUDR), when the European Parliament adopted additional amendments on substantial elements of the EUDR, while the European Commission’s proposal simply envisaged an extension of the implementation phase, the European Commission has called on the two co-legislators, the European Parliament and the Council, to consider fast-tracking the Omnibus Package, which would mean they would only consider the European Commission’s proposals, without debating other provisions of the legislation. Nevertheless, the entire legislative procedure is expected to take at least a couple of months, if not more.

Following adoption of the final text of the Simplification Directives by the European Parliament and the Council, it will be published in the Official Journal (OJ). Member States will then have to transpose these directives into national law. As several Member States have yet to adopt implementing legislation for the original CSRD, it is likely that these will adopt legislation that covers both the CSRD and the Simplification Directives. Member States which have already transposed the CSRD into their national legislation will need to amend that legislation by transposing the Simplification Directives.

In relation to CS3D, the Directive only entered into force in July 2024, which means that Member States will be required to transpose into national law the revised CS3D when it is in force (noting that Members States have an extra year to transpose the provisions).

Regarding the EU Taxonomy, the European Commission is consulting on a delegated regulation. Subject to the outcome of that consultation, the Commission will adopt the delegated regulation, and if no objections are received from the European Parliament and the Council within four months, the delegated act will enter into force.

We will provide further updates on these developments.

Background to Omnibus Package – why is simplification being proposed?

In November 2024, the European Commission President Ursula Von der Leyen announced the Omnibus Package when the EU Heads of State met in Budapest to discuss the Draghi Report on the future of European competitiveness.

Responding to the Draghi Report, in January 2025, the European Commission adopted the European Competitiveness Compass (ECC) which, among other things, confirmed the European Commission's intention to launch a series of Simplification Omnibus Packages, the first of which would be published in February 2025.¹ The ECC identified regulatory simplification as a "horizontal enabler" necessary to underpin competitiveness across all sectors and explained that the first Omnibus Package would simplify the fields of sustainable finance reporting, sustainability due diligence and taxonomy to deliver a 25% reduction in the administrative burdens placed by the relevant legislation on in-scope companies (35% for SMEs).

Following publication of the ECC, the European Commission adopted its 2025 work programme,² which sets out the list of the new policy initiatives the European Executive will take in the coming months. The programme includes three Omnibus packages and other simplification proposals.

The Omnibus Package on sustainability

The first Omnibus Package includes proposals for two Simplification Directives that make amendments to corporate sustainability reporting and due diligence requirements in the CSRD, CS3D, the Accounting Directive and the Audit Directive. The First Simplification Directive, which amends the CSRD and CS3D is proposed to come into force on the day following publication in the OJ. The Second Simplification Directive, which amends the Audit Directive, the Accounting Directive, the CSRD and the CS3D is proposed to come into force 20 days after publication in the OJ.

Alongside the Omnibus Package, the European Commission published a consultation on amendments to the Taxonomy Disclosures Delegated Act ((EU) 2021/2178), the Taxonomy Climate Delegated Act ((EU) 2021/2139) and the Taxonomy Environmental Delegated Act ((EU) 2023/2486). The consultation is open for comment until 26 March 2025.

Key changes proposed by the consultation include:

• Introducing a financial materiality threshold for Taxonomy reporting so that large undertakings with a large variety of activities will be exempted from assessing compliance with the technical screening criteria of non-material economic activities. Activities will be assumed not to be material if their cumulative value is below 10% of the KPI denominators. This de minimis threshold of 10% would allow reporting companies to focus their efforts of assessing Taxonomy compliance on those activities that represent a significant share of their revenues, capital or operational expenditures.
• Reducing the reporting templates by about 70% including simplification of summary KPIs and 'per activity information'.
• Introducing simplifications to the most complex DNSH criteria for pollution prevention and control related to the use and presence of chemicals that apply horizontally to all economic sectors under the EU Taxonomy.
• Adjusting, among others, the main Taxonomy-based KPIs for banks and, the GAR. Banks will be able to exclude from the denominator the GAR exposures that relate to undertakings which are outside the future scope of the CSRD.

The EU has also published a draft Regulation with changes to the Carbon Border Adjustment Mechanism (CBAM). We will be publish an update on this development shortly.

Key changes proposed to CSRD and CS3D

The tables below set out the key changes to the CSRD, CS3D and the Accounting and Audit Directives proposed by the Commission:

Comment

Deregulation not simplification?

The proposed changes made to the CSRD and CS3D go beyond what might have been expected from simplifying these regimes and look more like deregulation.

For example, by aligning the threshold criteria of CSRD with those of the CS3D, the Commission aims to reduce the number of businesses falling outside of the scope of the CSRD by 80%. For CS3D, the proposed move away from an EU-wide civil liability regime, focus on direct business partners and roll-back on penalties based on net turnover are significant changes to the core concepts of the sustainability due diligence regime. Other changes such as removing the requirement to put transition plans into effect are also a significant reduction in ambition. Many commentators consider that the result of all these changes to CSRD and CS3D will reduce them to something so much less ambitious than the original Directives and could risk delivery of the EU’s sustainability objectives. Several EU Governments have stated full support for more deregulation in area of ESG reporting obligations.

Given that many global organisations already navigate sustainability due diligence obligations under national legislation or have commitments including the UN Guiding Principles on Business and Human Rights, the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct, the UN Global Compact Ten Principles, among others, the question is whether the removal of EU obligations will significantly change the policies and procedures they have already put in place.

Company boards are now faced with the challenge of navigating an unclear landscape in the area of ESG reporting until all proposed changes have been implemented. Large EU undertakings, which are subject to full CSRD reporting, will be the first to make decisions against these standards when they prepare their reports, but others will face the same dilemma quickly. An illustrative example is the German LKSG which the former German Government had already voted to abolish but which is still in force to date.

While the ambition of reporting obligations may have been sacrificed to balance growth with sustainability, the wider business case for sustainability remains alive for many global businesses.

Impact of removal of the EU civil liability regime

The European Commission proposes to remove the CS3D's EU-wide liability regime, which would have permitted claims to be brought against companies for failing to prevent or bring to an end AIs, and also would have required Member States to allow victims to be represented by NGOs. If accepted, matters of civil liability will be governed by Member State national law, rather than EU law.

Whether this will reduce litigation risk for EU companies will depend on where within the EU the relevant company is based. Companies in jurisdictions where national law is more restrictive than the CS3D may face reduced risks, but companies in jurisdictions where the law is more favourable to the victim may not (although the CS3D always envisaged stricter national law liability regimes being preserved).

Equally, the removal of the provisions permitting NGOs to bring claims may reduce the number of claims, but may also lead to litigation becoming more fragmented, with the various victims suing companies individually.

Prior to these changes, the general view among litigators was that the EU-wide liability regime within the CS3D would probably not make that much difference to human rights litigation in EU jurisdictions (with the possible exception of the CS3D provision which provided for the Directive to have overriding mandatory application, irrespective of the law governing the claim – this is now proposed to be deleted). That was because many national laws impose liability of this nature already, especially in circumstances where companies have voluntarily agreed to comply with more stringent standards than those contained in the CS3D (such as under the UN Guiding Principles on Business & Human Rights).

Impact of the changes to the CSRD's scope

The impact of the changes to the scope of the CSRD will vary across businesses.

The first wave of companies in-scope of the CSRD that were required to report in 2025 have already started to publish Annual Report and Accounts (ARAs) that include sustainability statements. For those entities, the changes leave them at a potential disadvantage to sector peers who were required to report in subsequent years as they will have incurred costs as well as used valuable management time to produce their reports. If the proposals are adopted and they fall outside the CSRD's scope, they will need to decide whether any of the data and reporting has a value for other sustainability reporting they may be required, or voluntarily decide, to undertake. If they remain in scope once the proposals are adopted, their costs could increase because they may need to amend the data collection and reporting systems they have set up to comply with the revised CSRD regime.

In scope companies who were due to report next year under CSRD and are part way through the compliance process, will need to assess whether they remain in scope and if so when they will need to report. This adds uncertainty to the compliance process. If they fall out of scope, they will need to consider how the committed resources and finance should be redeployed.

Companies, including non-EU companies with an EU presence, that were in scope of CSRD but not due to report until 2029, will also need to assess whether they remain in scope. Those no longer required to report should nevertheless consider what reporting they still need to undertake to achieve their sustainability objectives.

Could further changes be made to EU sustainability legislation?

While the Omnibus Package has been welcomed by some businesses that were concerned about regulatory burdens, others have expressed concerns that the simplification exercise will undermine the objectives of the legislation and cause uncertainty. In January 2025, 170 civil society groups wrote to the European Commission to express concerns about the Omnibus Package.³ The letter highlighted that the process to develop the Omnibus Simplification Package has not complied with the EU's Better Regulation Guidelines, which suggest a 12-week public consultation when preparing initiatives that have significant economic, environmental or social impacts and where the European Commission has a choice of policy options.

These concerns about the adequacy of the consultation on the process to develop the Omnibus Package could be an indication that civil society groups could collaborate to challenge these proposals so further changes to the texts could be made.

Want to know more?

• EU adopts Corporate Sustainability Due Diligence Directive (CS3D)
• First European Sustainability Reporting Standards (ESRS) apply from 1 January 2024
• CSRD: EFRAG provides further detail on reporting for non-EU groups

Notwithstanding these changes and the political landscape in the US and EU, developing a credible and comprehensive Transition Plan (TP) remains crucial for you to effectively navigate sustainability reporting requirements and achieve your net zero ambitions. Find out more about our Transition Plan assessment tool tailored to clients.