While the European Union has established itself as a frontrunner in sustainability legislation, having passed a significant number of sustainability laws under its Green Deal, its recent omnibus sustainability package proposes to scale back some of those efforts after corporations have voiced concerns about the sustainability compliance burden and the EU Commission and various governments have expressed apprehensions about the potential impacts on the EU’s competitiveness.
In November 2024, EU leaders adopted the Budapest Declaration, in which EU heads of state called for “a simplification revolution, ensuring a clear, simple and smart regulatory framework for businesses and drastically reducing administrative, regulatory and reporting burdens, in particular for SMEs.” The EU Commission thereafter confirmed that it would propose an omnibus package, which would include simplifications in the fields of sustainable finance reporting, sustainability due diligence, and taxonomy.
However, while the focus of the omnibus initiative originally seemed to be on the consolidation of duplicative and overlapping reporting obligations and to especially facilitate rules for small- and mid-size companies, the omnibus package that was published by the EU Commission on February 26, 2025 (Omnibus Package) goes far beyond that. Not only was the proposal extended to cover the Carbon Boarder Adjustment Mechanism (CBAM) and European investment programs, but it also envisages major cutbacks to the existing sustainability laws. The package includes amendments to the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), CBAM, and the InvestEU Regulation.
The package is accompanied by a draft Taxonomy Delegated Act for further public consultation. Among the reasons for the EU Commission to propose such drastic alleviations for corporations also seems to be the mounting international pressure and hostility towards sustainability. The new US administration, for example, has issued executive orders seeking to dismantle federal DEI programs, signaling an era of heightened federal scrutiny of corporate DEI policies. Moreover, the extraterritorial application of CSRD and CSDDD has been called into question by the United States.
AMENDMENTS PROPOSED BY OMNIBUS PACKAGE: HIGH-LEVEL OVERVIEW
CSRD
- Scope: Only EU companies and EU parent companies with more than 1,000 employees and either a (1) turnover above €50 million or (2) balance sheet total exceeding €25 million would be in-scope
- Listed small- and medium-sized companies would be excluded
- The threshold for in-scope non-EU companies would be increased to those generating a turnover of at least €450 million in the EU
- Limitation of requests for value chain information: Companies in-scope of CSRD would be limited in obtaining value chain information from smaller companies that goes beyond the information specified in the reporting standards for voluntary use for small- and medium-sized companies to be adopted by the EU Commission
- Deletion of sector-specific standards: The proposal deletes the mandate of the EU Commission to adopt sector-specific sustainability standards
- Reasonable assurance standard deleted: The proposal aims to remove the possibility for the EU Commission to move from limited assurance to reasonable assurance
- Revision of the European Sustainability Reporting Standards: The EU Commission intends to revise the first set of European Sustainability Reporting Standards (ESRS) to reduce the number of mandatory ESRS data points
- Timeline: In a separate proposal, it is proposed to postpone the reporting obligations of certain companies by two years to avoid a situation in which certain undertakings that are currently in-scope are required to report for financial year 2025 (Phase II) or 2026 (Phase III) and would subsequently be relieved of this reporting requirement, as they would no longer be in-scope
- Flexibility when it comes to Taxonomy reporting: Large undertakings with an average of more than 1,000 employees and a net turnover not exceeding €450 million would be exempt or allowed to disclose taxonomy information in a more flexible way
EU Taxonomy
The EU Commission published for consultation draft amendments to the Taxonomy Disclosures Delegated Act, the Taxonomy Climate Delegated Act, and the Taxonomy Environmental Delegated Act, which envisage the following:
- Materiality threshold: Introduction of a financial materiality threshold for taxonomy reporting
- Simplification of reporting: Reduction of reporting templates by around 70%
- Amendment of Green Asset Ratio calculation: An adjustment of the main taxonomy-based KPI for banks, the Green Asset Ratio (GAR), such that banks would be able to exclude from the denominator of the GAR exposures that relate to undertakings outside the future scope of the CSRD
- Call for feedback: Due to the complexity of implementing the “Do No Significant Harm” (DNSH) principle, the EU Commission is asking for feedback on two alternative options for simplifying the two most complex DNSH criteria for (1) pollution prevention and (2) control regarding the use and presence of chemicals
CSDDD
- General simplification of sustainability due diligence obligations: Additional provisions would be subject to a full harmonization; the intervals between regular periodic assessments would be extended from 1 to 5 years; stakeholder engagement obligations would be reduced to “relevant” stakeholders; and the obligation to terminate the business relationship as a last resort would be deleted
- Limiting due diligence measures to direct business partners: Other than in exceptional cases, due diligence obligations would only exist in relation to the own operations, its subsidiaries, and regarding the chain of activities, those of its direct business partners
- Reducing trickle-down effect: The information that in-scope companies may request from their small- and medium-sized business partners would be limited to the information specified in the CSRD’s voluntary sustainability reporting standards for small- and medium-sized companies
- Amendments to penalties and civil liability regimes: Several amendments are proposed regarding the penalties; the harmonized EU conditions for civil liability and the member states’ obligation to allow for representative actions by trade unions or nongovernmental organizations were deleted
- Clarifications regarding Climate Transition Plans: The proposal clarifies and aligns the requirements on the adoption of climate transition plans with the CSRD provisions
- Review clause deleted: The review clause regarding the future inclusion of downstream financial services into the scope of CSDDD was deleted
- Timeline: The earliest entry into force would be in July 2028 and the second phase in July 2029; member states would have until July 26, 2027 to transpose CSDDD
CBAM
The proposed amendments to CBAM aim to spare 90% of concerned companies from reporting requirements, while still covering 99% of the CO2 emissions. Note that a later review of CBAM this year (followed by a legislative proposal in early 2026) is planned irrespective of the simplifications proposed by the Omnibus Package, which include the following:
- Exemption of small importers from CBAM obligations: New thresholds would exempt importers of small quantities of CBAM goods from CBAM obligations
- Simplification for importers above “new” CBAM thresholds, including the following examples:
- The possibility for authorized CBAM declarants to technically delegate the reporting requirements to third parties
- Simplification and amendment of rules on the calculation of embedded emissions for certain materials (precursors) and amendments to the emission verification rules
- Introduction of the possibility for authorized CBAM declarants to use default carbon prices and claim carbon prices paid in third countries other than the country of origin of the goods
- Modification of the repurchase limit to facilitate the way authorized CBAM declarant may manage their CBAM financial liability
- Postponement of the start date for the sales of CBAM certificates to February 2027 (as opposed to end of 2026)
NEXT STEPS
The changes to CSRD, CSDDD, and CBAM still require approval by the European Parliament and the Council before they can enter into force. The taxonomy-related changes (other than those already forming part of the CSRD amendments) were published for a four-week feedback period, which the EU Commission will take into account before finalizing its proposal. To encourage a swift adoption, the EU Commission has encouraged the co-legislators to treat the Omnibus Package with priority.
Nevertheless, its adoption is not a “done deal.” Various stakeholders have voiced strong opposition to it and are criticizing the EU Commission for dialing back its sustainability efforts. ESG interest groups, corporations that have invested considerable resources to become compliant, and EU member states that already transposed CSRD are unhappy. The last-minute changes also call into question the principle of legal certainty and could signal a benefit for companies that were planning to be noncompliant.
What Can Companies Do Now?
Although there is no “one-size-fits-all” approach, companies may consider the following recommendations:
- Monitor next steps, especially as the legislative process continues
- Evaluate what impact the proposal could have on them, given the different timelines of entry-into force of the EU laws affected, independently assessing the effects and risks for each law
- Consider their own ambitions when it comes to sustainability, as well as factor in private ordering and what requests and expectations their stakeholders have