Omnibus Package Proposed - Key Takeaways From The EU Commission's Proposal To Water Down Sustainability Requirements For Businesses

On 26 February 2025 the European Commission published its highly anticipated 'Omnibus Package', proposing vast amendments to the Corporate Sustainability Reporting Directive (CSRD), the EU Taxonomy Regulation (EU Taxonomy), the Corporate Sustainability Due Diligence Directive (CS3D) and the Carbon Border Adjustment Mechanism (CBAM).

According to the Commission, the package is in response to increased calls from EU businesses to reduce the regulatory burden of sustainability legislation passed under the EU Green Deal.

Current legislation

The CSRD is considered one of the most robust sustainability reporting laws internationally with requirements for in scope companies to report on how sustainability and ESG related issues affect their performance and also, their own impact on the environment and society. It came into effect in 2022 with many companies having already begun reporting under its obligations. Companies reporting under the CSRD will also be required to report this information in line with the EU Taxonomy which provides a common classification system for what can be defined as 'sustainable' activity by a company.

The CS3D, adopted in 2024, but which has not yet been implemented, acts as a complementary framework to the CSRD and EU Taxonomy. It imposes a due diligence duty on in scope companies to identify and address actual and potential environmental and human rights impacts within their own company and those in their value chain. Under the CS3D this duty is reinforced by the potential of turnover-related fines for non-compliance.

The proposed amendments if adopted as drafted, could have significant impact for companies already reporting under these laws, those preparing for compliance or those in the value chain of in scope companies. Our ESG team has analysed these proposed amendments and in this newsletter, we break down the main changes which will impact companies doing business in the EU if enacted.

Proposed changes to the CSRD

If enacted as is, the proposed amendments to the current CSRD will have significant impacts for almost 80% of the companies currently in scope.

Key proposals include:

• New scope:The proposal includes new scoping thresholds aligning more closely with the requirements under CS3D, which will take many companies out of scope entirely.

• Delay: Large enterprises and parents of large enterprises (the so-called "second wave") scheduled to begin reporting in 2026 for the 2025 financial year, would be delayed by two years until 2028 and SMEs with securities listed in the EU ("third wave") scheduled to begin reporting in 2027 for the 2026 financial year would begin in 2029.
• Higher scope for EU Taxonomy reporting: Only in scope EU companies or groups with a net turnover of 450 million will be required to disclose taxonomy information. Companies below this threshold will only have to make disclosures on specific data points related to certain claims made about the sustainability of their activities.
• Double materiality requirement: despite the suggestion of leaked documents circulated before the announcement of the proposal, the double materiality requirement remains unchanged, and companies would still have to report on both the financial effect of sustainability matters on their business and also their own impact on these issues.
• Assurance requirements: The Commission will no longer be required to adopt reasonable assurance requirements as currently envisaged for no later than 1 October 2028. The proposal instead will remove this requirement and keep the standard as limited insurance. The Commission also proposes to address the issue of excessive assurance activities raised by complying companies in the first wave by issuing targeted assurance guidelines for assurance providers. This guidance is planned to be provided before adopting the limited assurance standards due by 1 October 2026.
• Voluntary standards and value chain reporting: Companies will no longer be required to report on information of those companies in their value chain that are not covered under the scope of the CSRD. Further, in reporting on the activities of these companies they will not be able to seek information beyond what is specified in new 'voluntary' standards to be developed by EFRAG. These will be based on the VSME standards (Voluntary Sustainable Reporting Standard for non-listed SMEs).
• ESRS changes and sector specific standards: The Commission proposes to amend the European Sustainability Reporting Standards (ESRS) developed by EFRAG with the aim of substantially reducing the number of data points, clarifying provisions deemed unclear and improving consistency with other pieces of legislation. This is a commitment by the Commission announced alongside the Omnibus and does not form part of the formal proposal. However, sector specific standards which were due to be adopted in June 2026 will also be removed as part of the proposal.

Proposed changes to the CS3D

Unlike the CSRD, the CS3D has not yet been implemented into the national law of EU member states and is due to start applying for the first wave of companies from 2027.

Key proposals include:

• Scoping threshold: the thresholds for application of the CS3D remain the same and companies who are already assessed as being in scope will remain subject to this legislation.
• Delay: A delay of one year is proposed for the current transposition deadline to 26 July 2027 giving companies under the first wave of obligations until 26 July 2028 to prepare for compliance.
• Removal of due diligence on indirect suppliers: Companies will no longer be required to map the adverse impacts of indirect suppliers in their supply chain. In assessing its supply chain, the company would only need to focus on its own operations, those of its subsidiaries and those of its direct suppliers. The company may still have due diligence obligations however if it has plausible information to suggest an adverse impact has or may arise from the operations of an indirect partner.
• No obligation to terminate contracts: Where efforts to mitigate the adverse effects of business partners has been unsuccessful, companies would no longer be required to terminate these relationships as a last resort. The requirement would only be to suspend these relationships related to the activities causing concern or refrain from entering into new agreements with these business partners. In addition to this, a company would be exempt from civil liability for continued engagement with these business partners if there was a reasonable expectation that an enhanced prevention action plan could succeed.
• Civil liability regimes and penalties for non-compliance: Currently, there is a requirement under the CS3D for member states to ensure that they have a civil liability regime in place, so that companies can be held accountable where failures to comply with their due diligence obligations lead to damage. The Omnibus proposal removes this requirement leaving decisions on potential civil liability up to the individual member states.

Member states will also no longer be required to allow NGOs and unions to bring representative actions on behalf of injured parties but may opt to do so if they wish. This may lead to varying severity of penalties for non-compliant companies depending on EU member state liability rules.

Penalties would also be delinked from the company's worldwide turnover and member states would have more discretion on the calculation of penalties.

• Monitoring of due diligence processes: The frequency of assessments by companies of their internal due diligence processes will be reduced from every year to 'at least every five years'.
• Definition and role of a stakeholder: Under the new proposal, the definition of stakeholder has been amended, removing national human rights and environmental institutions and civil society organisations from its scope. This would limit the amount of persons or entities that a company would need to engage with during certain points of the due diligence process where stakeholder engagement is necessitated.

The proposal will also remove the need for stakeholder consultations where a company is disengaging from a business relationship or developing indicators for due diligence monitoring.

Proposed changes to CBAM

Under the suite of draft amending legislation introduced under the Omnibus package, several key amendments to CBAM were also made.

Key changes include:

• New scoping thresholds: A proposal to introduce a new cumulative annual threshold of 50 metric tons per importer excluding close to 90% of companies currently in scope.
• Exemption introduction: The proposal also introduces a new exemption for smaller importers.

Our team has been monitoring the CBAM closely, we invite you to read our recent article here where we assess some of the most recent developments on this key instrument.

What happens next?

The legislative changes proposed will now be subject to the ordinary legislative procedure and as such will be passed to the European Parliament and Council for consideration. This means that both will have the opportunity to make additions or amendments to the proposals and an adoption of the changes in their current form is unlikely. Additional obligations or new requirements are very possible, and we will follow this process over the coming months.

Timing

Regarding the proposal to amend the date of application of the CSRD and CSDDD, the proposed text outlines that Members States should implement this directive by 31 December 2025, which is a shorter timeframe than is usually required for implementing EU legislation. In contrast, the proposal to amend certain provisions of both directives requires Member States to implement the directive 12 months after the entry into force of the directive.

If the timing proposals as outlined above remain, the postponement of the CSRD and CSDDD is likely to be implemented within three to six months, with the proposed changes to these laws being implemented 12 months after the directive is adopted and published in the Official Journal of the EU. Further, the draft proposal modifying the current delegated acts under the EU Taxonomy will now be subject to a public consultation and will then undergo review and negotiation by the EU Parliament and Council of the EU resulting in a more extended expected timeline than the CSRD and CSDDD.

Sustainability legislation in EU Member States remains in effect

In the meantime, until the Omnibus Package is adopted and implemented in the EU Member States, it is important to be aware that the sustainability legislation as it is currently implemented at national level remains in effect for companies to comply with. This raises important questions for companies on how best to continue with their current reporting obligations and how to anticipate these changes may affect their compliance preparations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.