ARTICLE
19 March 2025

The EU Omnibus Package: Reshaping ESG And Sustainability Regulations

W
WilmerHale

Contributor

WilmerHale provides legal representation across a comprehensive range of practice areas critical to the success of its clients. With a staunch commitment to public service, the firm is a leader in pro bono representation. WilmerHale is 1,000 lawyers strong with 12 offices in the United States, Europe and Asia.
On 26 February 2025, the European Commission (EC) unveiled a series of proposals (the Omnibus package) that could have far-reaching implications for corporate sustainability and environmental regulations.
United States Corporate/Commercial Law

On 26 February 2025, the European Commission (EC) unveiled a series of proposals (the Omnibus package) that could have far-reaching implications for corporate sustainability and environmental regulations. The package addresses several key areas, including the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CS3D), the Carbon Border Adjustment Mechanism (CBAM) and the EU Taxonomy (the Taxonomy).

In this alert, we highlight the key changes proposed in the Omnibus package, which are planned to be voted on.

Revisions to the CSRD

The Omnibus package introduces several changes to the CSRD to streamline its implementation for companies. The CSRD is an EU directive requiring large and listed companies to report on their monitoring of ESG issues and the environmental impact of their activities. Its main goals are to enhance accountability and transparency and promote sustainable investments. The proposed changes include:

  • Narrowing the scope of the companies that must report on sustainability by about 80%. Currently, large companies (defined as those meeting at least two of the following criteria: €50 million in net turnover, €25 million in balance sheet total and at least 250 employees) and small and medium-sized enterprises (SMEs) listed on a regulated EU market must report their sustainability performance. The Omnibus package proposes significantly limiting the scope of this obligation to companies with more than 1,000 employees and either (a) a turnover exceeding €50 million or (b) a balance sheet total over €25 million. These new thresholds would more closely align with those of the CS3D. Companies with fewer than 1,000 employees will have the option to report voluntarily, following a simplified standard based on the voluntary standards for SMEs (also referred to as VSMEs) developed by the European Financial Reporting Advisory Group.
  • Proposed delay in reporting requirements. The Omnibus package also proposes a two-year delay in the implementation of CSRD reporting requirements for companies subject to obligations under the directive as of 2025. This would push the reporting deadline for large EU companies to 2027. However, Public-Interest Entities1 with more than 500 employees will not be affected by this delay and will still need to comply with the original timeline.
  • Revision of the European Sustainability Reporting Standards (ESRS) framework. The EC has proposed revisions to the delegated act that establishes the ESRS. The ESRS are the detailed reporting standards that specify how companies must comply with the CSRD. They include concrete rules, metrics and disclosures that companies must follow. The proposed revisions aim to clarify any ambiguous provisions and improve alignment with other regulations. To alleviate the administrative burden on companies, the EC's proposal also includes substantially reducing the number of data points for reporting.
  • The Omnibus package does not alter the "double materiality" principle. Consequently, companies must still report both financial materiality (how sustainability issues affect the company's financial performance) and impact materiality (how the company's operations affect people and the environment).

Impact on the EU Taxonomy

Since the Taxonomy came into force in 2020, companies within its scope have been required to report the proportion of their activities that align with its criteria. The Taxonomy is a classification system that defines and establishes rules to identify environmentally sustainable economic activities. It aims to combat greenwashing by providing transparency for sustainable investments while also introducing new disclosure obligations for companies and financial market participants. The proposed changes under the Omnibus package will introduce several key updates to the Taxonomy's application:

  • Proposed amendments to Taxonomy disclosures. The EC has proposed draft amendments to the Taxonomy Disclosure Delegated Act and the Climate and Environmental Delegated Acts. These changes aim to refine and clarify how companies report their alignment with the Taxonomy, improving transparency and consistency.
  • Voluntary reporting for some companies. For companies falling under the CSRD, specifically large companies with over 1,000 employees and a net turnover up to EUR 450 million, the proposal suggests that Taxonomy reporting will be voluntary. This will reduce the number of companies required to report their Taxonomy alignment.
  • Voluntary reporting for partial Taxonomy alignment. Companies that only meet some of the Taxonomy requirements will have the option to voluntarily report their partial alignment. This provides an opportunity for companies to showcase their progress toward full alignment and gain recognition for their ongoing sustainability efforts.
  • Amendments to financial institutions' key performance indicators (KPIs). The EC has also proposed changes to the KPIs for financial institutions, particularly the green asset ratio (GAR) for banks. Under the proposed amendments, banks will be allowed to exclude exposures related to companies within the future CSRD scope (i.e., companies with fewer than 1,000 employees) from the denominator when calculating the GAR.

Revisions to the CS3D

The EC's proposals aim to create a significantly less burdensome sustainability due diligence framework. The CS3D seeks to mandate that companies operating in the European Union address and remedy adverse human rights and environmental impacts across their operations and supply chains while providing access to justice for those affected. Key proposals relating to the CS3D include:

  • Extended timeline for implementation. The EC proposes extending the deadline, from 26 July 2026 to 26 July 2027 , for Member States to transpose the new sustainability due diligence framework into national law. The CS3D will be implemented in phases, gradually applying its requirements to different entities over a specified timeline. Currently, due diligence obligations under the first phase, which apply to large companies with over 5,000 employees and annual revenues exceeding €1.5 billion, were initially set to take effect in July 2027. However, the amendments propose delaying implementation to July 2028. In practical terms, the revised Article 37(1) of the CS3D suggests removing the separate category for wave 1, so these companies will now fall under wave 2, reporting from July 2028 (i.e., companies with over 3,000 employees and revenues exceeding €900 million). In the meantime, the EC is expected to release guidelines by July 2026.
  • Simplified due diligence requirements. The obligation to systematically assess adverse impacts in complex value chains, particularly involving indirect business partners, will be relaxed. Companies will only need to conduct full due diligence on these partners if they have credible information indicating potential adverse impacts.2 The sustainability due diligence framework will also be simplified by extending the frequency of regular assessments from one year to five years. Companies will only need to update their due diligence measures if there are reasonable grounds to believe existing measures are inadequate. Additionally, the obligation to terminate business relationships as a last resort will be removed.
  • Deferral to national civil liability regimes. Previously, specific provisions of the CS3D outlined the conditions for civil liability under the directive, holding companies accountable for full compensation if their unintentional or negligent failure to comply with the directive caused harm. The proposal shifts responsibility to national civil liability laws, removing the EU-wide liability conditions. It also eliminates the requirement for Member States to allow representative actions by trade unions or NGOs.
  • Alignment with the CSRD. The framework for adopting transition plans for climate mitigation will be aligned with the requirements of CSRD, ensuring consistency across regulations.
  • Removal of the review clause for financial services. The CS3D initially included a review clause requiring the EC to report to the European Parliament and the European Council by 26 July 2026 on the need for additional sustainability due diligence requirements for financial undertakings. The proposal removes the review clause concerning the inclusion of financial services in the scope of the CS3D, clarifying that this sector will not be considered for future inclusion.

Revisions to CBAM

CBAM imposes a carbon tariff on carbon-intensive products imported into the European Union to prevent carbon leakage and promote cleaner industrial production. The proposed changes to the CBAM are designed to simplify compliance and reduce administrative burdens.

  • Exemptions for small importers. Smaller importers, including many SMEs and individuals, will be exempt from CBAM obligations. This exemption applies to businesses importing small quantities of goods with minimal embedded emissions from non-EU countries. Specifically, occasional importers bringing in fewer than 50 tons of goods covered by CBAM annually or with less than 100 tons of embedded CO₂ emissions will no longer be required to comply with CBAM requirements. However, these importers must self-identify as "occasional CBAM importers" when submitting customs declarations and must monitor their annual imports to ensure they remain below the threshold. This is expected to relieve about 90% of importers from compliance requirements while still covering 99% of emissions.
  • Simplified obligations for larger importers. The first purchase of CBAM certificates is now postponed to February 2027, covering 2026 imports. Previously, companies were expected to buy CBAM certificates as of January 2026. This change simplifies how declarants manage their financial liability during the first year by addressing major stakeholder concerns about financial risks. These concerns were due to legal uncertainties surrounding how the CBAM financial adjustment would be calculated and applied in 2026. Under the new rules, declarants will start buying CBAM certificates for 2026 imports only once they have enough clarity on the number of certificates they will need to surrender by 31 August 2027.
  • Strengthened anti-abuse and anti-circumvention measures. The proposed amendments will strengthen anti-abuse measures, particularly by targeting the artificial splitting of Economic Operators Registration and Identification (EORI) numbers. National authorities will be empowered to penalize companies that attempt to evade CBAM obligations by distributing imports across multiple importers with different EORI numbers to circumvent CBAM obligations. The amendments also introduce a joint anti-circumvention strategy between the EC and national authorities. Specifically, the CBAM regulation will be amended to clarify their shared responsibility for monitoring occasional importers and identifying those exceeding the threshold. If the EC identifies an importer surpassing the threshold, it will notify the relevant national authority, which will then verify the breach.

Next Steps

The Omnibus proposal will now be reviewed by the Parliament and the Council. Both have the power to make changes to the proposal. The EC has asked the Parliament and the Council to fast-track the package, in particular due to the urgency of some reporting requirements under the CSRD. However, the legislative process will follow the standard procedure. Therefore, the EC will have limited control over any additional changes proposed in the coming stages, and new amendments could still be introduced.

The Omnibus package represents a major shift in corporate sustainability and environmental rules, creating both opportunities and challenges for businesses. WilmerHale is well placed to advise on these changes, given our extensive experience in this area. As the Omnibus package is critical for many companies operating in the European Union, they should act quickly to adapt to these changes and ensure compliance.

Footnotes

1. "Public-Interest Entities" are defined by Article 2 point (1) of the Accounting Directive as undertakings that are (a) governed by the law of a Member State and whose transferable securities are admitted to trading on an EU-regulated market, (b) credit institutions, (c) insurance undertakings or (d) designated by Member States as Public-Interest Entities.

2. Plausible or credible information refers to objective information that suggests a reasonable likelihood of being true. This could include complaints, credible media or NGO reports, recent incident reports, or recurring issues at specific locations related to potential or actual harmful activities by an indirect business partner.

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.

See More Popular Content From

Mondaq uses cookies on this website. By using our website you agree to our use of cookies as set out in our Privacy Policy.

Learn More