Stepping back from the brink: the EU’s First Omnibus Package

The EU Commission proposes to simplify and pare back sustainability legislation with its first Omnibus Package. This article explores the potential impacts on the CSRD and CSDDD.

On 26 February 2025, the EU Commission released details on its proposal for a new legislative package (the First Omnibus Package) which aims to simplify sustainability rules affecting companies trading in the EU or with EU counterparties – particularly in respect of sustainable finance reporting, sustainability due diligence and taxonomy. Release of the draft package details had been heavily anticipated since a “simplification revolution” was announced by Ursula von der Leyen in Budapest last November and the EU’s Communication on the Competitive Compass, in which the package was first announced, was published in January 2025.  

If adopted, the First Omnibus Package would impact various pieces of EU sustainability legislation, including the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), Carbon Border Adjustment Mechanism (CBAM) and the EU Taxonomy Regulation (EU Taxonomy).

Two draft directive proposals which form part of the First Omnibus Package have been made available on the EU Commission’s website. These, if adopted, would result in watering-down changes to the above-mentioned legislation – with more potential proposals to come. There is also a draft delegated act aiming to simplify the EU Taxonomy acts. All of these proposals will need to be reviewed, approved and adopted by both the EU Commission and the EU Parliament before entering into law.

Some commentators consider the scale of the proposed revisions, which in many cases are a direct about turn from original texts that were only very recently published, to be a step backwards in the progress towards reaching climate goals, since the scope of the amendments would result in delays to the positive impacts of the new sustainability legislation. The proposal itself acknowledges that, in relation to the CSRD, the proposed modifications may partially diminish positive impacts with respect to companies that would no longer be subjected to mandatory reporting requirements. However, in practice, they appear to be a response to the many voices that have been questioning the wisdom and practicality of unilaterally imposing on the market such far-reaching rules that will disrupt supply chains and adversely impact the competitiveness of EU market participants.  In this light, the First Omnibus Package appears to project a rational response to a new world paradigm.

First Omnibus Package – key changes

The proposed changes under the First Omnibus Package will affect EU sustainable finance, sustainable investments and taxonomy, as well as covering amendments to specific pieces of standalone legislation relating to sustainable reporting and due diligence, such as the CSRD, CSDDD, and CBAM. Broadly, the combined effect of the changes is intended to focus the EU’s attention on targeting the largest companies whilst reducing administrative burden and complexity for SMEs and mid-sized companies. The changes are also intended to help unlock investment opportunities, since they would reinforce the simplicity and predictability of new rules, improving certainty for decision-making.

This article focuses mainly on the changes to sustainability reporting and due diligence requirements which would come into force via the First Omnibus Package (if adopted) in relation to CSRD and CSDDD.

Proposed Changes to the CSRD

The CSRD, which entered into force in 2023, is an amending directive which makes sustainability reporting additions and amendments to the Accounting Directive, the Transparency Directive, the Audit Directive and the Audit Regulation.

Some of the most important proposed changes under the First Omnibus Package would include the following:

• Reporting requirements for the CSRD would be more closely aligned with the CSDDD, so that they would apply only to large undertakings which meet the appropriate financial thresholds and which have over 1000 employees on average. This proposal would remove around 80% of companies originally within the scope of the CSRD.
• For undertakings which are not subject to mandatory reporting requirements (for example by being removed from the CSRD’s scope in the way described above), there would be a set of voluntary requirements.
• CSRD in-scope companies would only be able to request information for companies outside scope under proposed voluntary standards rather than mandatory standards. Previously, if these companies had been caught in a company’s value chain, the reporting of such information would have been mandatory.
• A postponement by two years of the entry into force of reporting requirements for all companies in the CSRD scope that are required to comply from financial year 2025 or 2026 respectively.
• There would be no sector specific ESRS¹ reporting standards (as there were intended to be).  This would reduce the overall number of datapoint reporting requirements for companies in certain sectors. In addition, the EU Commission would reduce the number of datapoints and clarify the existing ESRSs by way of amending delegated act.
• Under current CSRD legislation, there is a requirement for certain reported data to be given with a limited assurance, with a possibility for this to move to a reasonable assurance requirement. This possibility of a reasonable assurance requirement would be removed, which is intended to help ensure certainty and reassurance as to future costs.
• The Commission would issue guidelines instead of sustainability assurance standards.
• An opt-in regime would be introduced, by which large undertakings which meet the minimum financial requirements (and with more than 1000 employees on average and a net turnover of less than EUR 450 million) that claim their activities are aligned or partially aligned with the EU Taxonomy can disclose and align themselves in ways so as to reduce the cost of compliance with the Taxonomy reporting rules.  

Proposed Changes to the CSDDD

The proposed changes to the CSDDD under the First Omnibus Package are arguably more substantial than those for the CSRD:

• As currently drafted, the CSDDD is not due to enter into application for the first tranche of companies falling within its scope until July 2027. Under the First Omnibus Package, this would be postponed by a further year. There would also be a one-year postponement to the transposition deadline for the CSDDD by Member States. There has been much uncertainty surrounding transposition and implementation, and this postponement would allow companies more time to prepare for the changes and with greater clarity.
• Companies would no longer be obliged continually to monitor for adverse impacts within their value chain beyond direct business partners, unless the company has information which points to the fact that adverse impacts are present or may arise within the business of indirect business partners. Examples of such information would include, for example – relationships that lack economic rationale, media reports of harmful activities by a company, or a company receiving complaints.
• The frequency of reporting of due diligence requirements would move from one year to five years (although there would be an ongoing obligation to provide updates in the interim if there are reasonable grounds to believe measures are no longer adequate or effective).
• The obligation for companies to terminate business relationships if there are ongoing issues with compliance by a business partner would be removed.
• The CSDDD would become more closely aligned with the CSRD. The information which companies within scope may request from their supply chains would be limited to the information specified in the CSRD voluntary sustainability reporting standards, subject to certain exceptions. The requirements for the adoption of a transition plan by a company under the CSDDD would also be better aligned with the CSRD under the new proposal.
• The CSDDD currently contemplates the inclusion of financial services into its scope by way of a review clause in the CSDDD. The First Omnibus Package would remove this review clause, such that the financial services sector would not be included in its scope.
• The First Omnibus Package proposes a deferral to the national law in order to hold a company liable for damage caused to a natural or legal person due to failure to comply with the CSDDD. This would remove the current EU-wide obligation on Member States under the CSDDD to ensure that companies can be held liable for breaches and instead defers to national regimes for the determination of liability. Nonetheless, the First Omnibus Package proposes that companies which have been held liable under national law should provide full compensation to the natural or legal person to whom damage was caused.

How can companies remain prepared?

One of the EU Commission’s stated aims for the First Omnibus Package is to boost competitiveness by reducing the complexity and compliance burden on smaller and mid-sized businesses as they start to respond to the raft of new EU sustainability legislation.

Over the coming months, companies should keep a careful watch on the status of these new directives as they undergo the EU’s legislative process. When preparing for their new reporting and compliance obligations, companies should bear in mind that these proposed key changes under the First Omnibus Package, if implemented, could lead to longer timeframes and a scaling back of the rules which may apply to them – particularly in relation to the CSRD and CSDDD. At this stage, however, considerable uncertainty remains for companies caught within their scope.

Footnotes

1. European Sustainability Reporting Standards