EU's Omnibus Proposal: Simplification of Sustainability Regulation and Reporting Requirements or Deregulation?

In it's first Omnibus, the Commission is set to publish a proposal for legislative instrument, that has the goal to harmonize and simplify the reporting requirements of the Corporate Sustainability Reporting Directive (CSRD), Corporate Sustainability Due Diligence Directive (CSDDD), and EU taxonomy, and to eliminate overlapping regulations.

All of these instruments have been quite recently adopted in the EU, and the proposal would again change their content. The proposal is driven by concerns over the growing administrative burden on EU companies and its impact on competitiveness.

The first Omnibus proposal was initially planned to be published on February 26, 2025, but the exact date is uncertain, with the work program indicating publication of the proposal in Q1 2025.

Limited information is available from official EU sources about the proposal's content. It was mentioned in the European Commission's report "EU Compass to regain competitiveness and secure sustainable prosperity" published on January 29, 2025, as well as in the work program and a communication on the simplification package released simultaneously.

Assessing the contents of the Commission Competitive Compass as well as Work Programme, the following changes are likely to be put forward. We have assessed and provided insights to provide some clarity over the contents, but the following should be read only as suggestions and only the official proposal for a legislative instrument from the Commission holds legal value.

1. Narrowing of Scope:

The proposal is likely to narrow the scope of the CSRD and/or harmonize it with the CSDDD. This would mean that most companies currently under the CSRD would fall outside its scope. A new company category between "large companies" and SMEs is proposed.

The goal is to reduce reporting requirements by 25% for all companies and by 35% for medium-sized companies. Companies in the new category would likely benefit from simplification similar to SMEs. The aim is for sustainability reporting requirements to be proportionate to the company's size and resources.

A challenge is that large companies might pass stringent requirements down the value chain, affecting companies with varying capacities to meet these demands.

2. Consideration of Investors' Needs:

The proposal aims to better address investors' information needs and ensure that sustainability reporting requirements do not hinder investments in smaller companies during the transition period. How this will specifically be addressed remains to be confirmed.

3. Postponement Implementation:

It is speculated that the implementation of regulations, particularly CSRD and CSDDD, might be delayed giving companies reasonable time to prepare and ensure their processes meet the required standards.

Postponing the implementation of sustainability reporting is challenging due to the integration of CSRD into national laws in several EU countries. Changes in scope or novel transition periods could create uncertainty between the adoption and transposition of new regulations. If the amendments are carried out by a Regulation, it will be directly applicable in all EU Member States, but national laws might still require amendment. This is because CSRD as a Directive has been transposed separately into national laws.

4. Protection of SMEs:

Measures are intended to protect SMEs and prevent the "trickle-down effect" of reporting requirements to smaller companies in the supply chain.

5. Changes to EU Taxonomy:

The proposal aims to simplify the EU taxonomy. It will include changes to the EU Taxonomy, following a report by the EU Platform for Sustainable Finance on February 5, 2025, which suggested clarifying "Do No Significant Harm" assessment and reporting obligations, applying the materiality principle, and allowing estimates for green asset and investment ratios.

A challenge is the extensive application of technical assessment criteria across industries. Significant changes to these criteria could increase workload or reduce the taxonomy's role in practice.

Many speculations are on-going on more extensive amendments to the bodies of these instruments. Speculations suggest i.a. broader changes to CSRD, CSDDD, and taxonomy beyond just scope adjustments. For example potential changes to the double materiality analysis and a reduction in data points for sustainability reporting standards (ESRS) are discussed. This could lead to partial rewriting of ESRS standards.

There are also speculations about revising the core content of CSDDD and the scope of due diligence obligations, as well as changes related to climate transition plans required under current regulations.

The proposal aims to eliminate regulatory overlaps and streamline the regulatory framework, particularly reducing the administrative burden on SMEs and protecting them from the "trickle-down effect" of responsibilities. The changes might be welcomed by companies depending on their industry and sustainability efforts.

A challenge is the potential weakening of legal certainty and predictability. Many companies have already started reporting or preparing to report according to CSRD and ESRS, investing significant resources. Investors are concerned that narrowing the scope and reverting to voluntary reporting could undermine the goals of sustainability reporting, such as comparability, reliability, and transparency.

A key question is the national implementation and timing of the proposal. The proposal will be subject to the EU legislative procedure, involving all three institutions EU Parliament, EU Council and the Commission. As discussed earlier, an amendment based on a regulation would be directly applicable, while a directive-based amendment would require national implementation and transposition into national law. The proposal's and eventual legal instrument's relation to existing regulations and transition periods is uncertain, creating a period of uncertainty for companies up until far beyond 2026.

Sustainability and corporate responsibility have become legal issues rapidly over the past six years. It's important to remember that sustainability issues are not new, and the drivers behind the theme have not disappeared. Many companies have been working on sustainability for decades, and this work will not end with yet another regulatory change.

Recent "Roundtables" discussions in Brussels have involved companies and stakeholders. Some companies express concerns about the growing administrative burden and its impact on competitiveness, while others support sustainability regulation. Sustainability reporting is seen as a valuable tool for developing responsibility work and setting goals.

Some stakeholders are concerned about the potential undermining of EU sustainability goals and the Green Deal program of the previous Commission, suggesting that the Omnibus proposal aims at deregulation.

CSRD, CSDDD, and EU taxonomy play a central role in achieving EU sustainability goals. The challenge is balancing the reasonableness of reporting and other responsibilities with systematically advancing sustainability goals of the companies and of the entire European Union.

The Commission's work program and Omnibus initiatives are key monitoring tools for 2025 but turning them into regulations requires the normal EU legislative process. Predictability of regulation is a key challenge for 2025.

Fondia's experts closely monitor the development of Omnibus and other sustainability regulations and keep our clients up to date on all essential changes.