Clifford Chance

Following significant rumour and controversy, a proposal was published on 26 February 2025 to amend existing laws. Its announced purpose is to reduce the compliance burden on companies while boosting competitiveness.

On 26 February 2025, the EU Commission published a proposal for a so-called "first EU Omnibus Package", divided into Omnibus I and Omnibus II. Omnibus II focuses on amendments to several investment programmes such as InvestEU. Omnibus I addresses EU sustainability reporting and due diligence rules as well as the EU carbon border adjustment mechanism ("CBAM"). This blog post outlines key elements of the Omnibus I proposal that are intended to streamline the Corporate Sustainability Reporting Directive ("CSRD"), the Corporate Sustainability Due Diligence Directive ("CS3D") and the EU Taxonomy Regulation ("the Proposal"). A briefing is upcoming on the proposed revisions to CBAM.

The EU Commission announced that further Omnibus packages will follow in the upcoming months but has not yet provided further details on which laws will be affected by the later packages.

The Proposal – what's planned?

Sustainability reporting (CSRD and Taxonomy Regulation):

• Scope of application: The Proposal, if adopted, would remove about 80% of companies from the scope of sustainability reporting requirements. The Proposal is that the CSRD should only apply to companies that have more than 1000 employees and either a net turnover above EUR 50 million or a balance sheet above EUR 25 million. This is in contrast to the current position under CSRD, whereby companies are already in scope if they are considered "large", i.e. meet two of the following three criteria: (i) net turnover: EUR 50 million; (ii) balance sheet total: EUR 25 million; and (iii) average number of employees: 250. In addition, the current obligations also apply to publicly listed small and medium-sized undertakings ("SMEs"). The latter would be completely out of scope under the Proposal. The massive increase in the employee threshold would remove many companies from the scope of the CSRD. Further ·information on the currently applicable regime can be found in our briefing on the CSRD.
  The Proposal also introduces an "opt-in" regime where large undertakings with more than 1,000 employees on average and a net turnover not exceeding EUR 450 million which claim that their activities are aligned or partially aligned with the EU Taxonomy shall disclose their turnover and CapEx KPIs and may choose to disclose their OpEx KPIs.
• Timing: The CSRD's reporting requirements would, if the Proposal is adopted, be postponed for two years, i.e. until 2028. This concerns in-scope companies of the so-called "waves 2 and 3", so companies which are required to report under the CSRD over FY 2025 and FY 2026. There are no changes to the timing of companies of "wave 1", i.e. companies already reporting under the CSRD over FY 2024. The Proposal will most likely be "fast-tracked", so not be subject to the normal Level 1 legislative procedure. 
• Reporting obligations: The Proposal aims to mitigate the "trickle-down" regulatory burden of sustainability reporting legislation on companies that are not in scope (especially SMEs) by adopting a voluntary reporting standard based on the voluntary reporting standard for SMEs developed by EFRAG (more information here). This would be used as a supporting tool for companies out of scope of the CSRD but subject to sustainability information requests when included in the value chain of larger companies. At the same time, the voluntary standard would provide a "value-chain cap", i.e. in-scope companies cannot request information that goes beyond the information set out in the standard.
  
  Further, the EU Commission would adopt a delegated act to revise and simplify the existing European Sustainability Reporting Standards ("ESRS"). In the press conference announcing the Omnibus Package, the commissioners stated that there would be a substantial reduction in the number of data points that must be reported on. Meanwhile, the CSRD amendments would remove the possibility of sector-specific ESRS.
  
  The EU Commission also published draft amendments to the Taxonomy Disclosures Delegated Act and the Taxonomy Climate and Environmental Delegated Act which are open for a four-week consultation. These drafts aim to simplify the reporting templates and to reduce the number of data points by around 70%, and provide for a new threshold when it comes to assessing taxonomy-eligibility and alignment of the company's economic activities: those activities that are not financially material for its business, i.e. do not exceed 10% of the total turnover, capital expenditure or total assets, are exempt from the assessment.
  
  On top of this, the EU Commission seeks feedback on the "Do No Significant Harm" (or "DNSH") criteria for pollution prevention and control related to the use and presence of chemicals that apply horizontally to all economic sectors.
• Assurance requirements: Under the CSRD, in-scope companies must currently publish their sustainability information with the opinion of a statutory auditor or of an independent assurance service provider if the Member State made use of this possibility. The Proposal seeks to remove the possibility to move from limited assurance to the requirement for reasonable assurance. It seeks to do so to avoid future increase in the costs of assurance.

Sustainability due diligence (CS3D):

• Thresholds remain: No changes regarding the CS3D's scope of application have been proposed (for further information on the currently applicable CS3D scoping criteria, please refer to our previous blog).
• Timing: The transposition deadline for the Member States would be postponed by one year to 26 July 2027. The first phase of application of the due diligence obligations (i.e. for large companies) will begin on 26 July 2028. The first guidelines on how to fulfil the due diligence obligations would be published by the EU Commission in July 2026.
• Focus on direct business partners: In relation to the obligation to take appropriate measures to identify and assess actual and potential adverse impacts arising from the operations of business partners, the Proposal still requires companies to conduct a mapping exercise to identify general areas where adverse impacts are most likely to occur and to be most severe. However, it limits the requirement to conduct an in-depth assessment to the operation of direct business partners only, except in limited circumstances. An in-depth assessment of adverse impacts at the level of indirect business partners would only be required in cases where the company has plausible information suggesting that adverse impacts have arisen or may arise there. This approach towards indirect business partners reflects the approach of national due diligence laws such as the German Supply Chain Act. Moreover, the trickle-down effect of regulatory burdens would also be addressed by limiting the information that in-scope companies may request from SMEs and small mid-cap business partners with more than 500 employees to the information set out in the CSRD voluntary standard (see above). However, companies are still expected to ensure that their codes of conduct are followed throughout their chain of activities by seeking contractual assurances from direct business partners that the requirement to observe their codes of conduct will be cascaded through the value chain through equivalent contractual assurances.
• Termination as a last resort deleted: Articles 10 and 11 of the CS3D require termination of business relationships as a last resort where preventive or corrective actions respectively fail to appropriately address adverse impacts. Under the Proposal, companies would only be required to suspend business relationships with respect to the activities concerned.
• Harmonisation: The Omnibus Package proposes that Member States should no longer be able to adopt stricter national rules relating to the core due diligence requirements of the CS3D.
• Greater intervals for monitoring: The Proposal increases from 12 months to five years the period after which companies would be required to assess the adequacy of due diligence measures. More frequent assessment may be warranted where there are reasonable grounds indicating that the measures are no longer adequate or effective. This "ad hoc" assessment is also a familiar concept in national due diligence laws, such as the German Supply Chain Act.
• Climate transition plan: The requirement to "put into effect" a climate transition plan would be removed: in-scope companies would only need to adopt a climate transition plan and report on implementation actions. As is currently the case, companies that already report a climate transition plan under CSRD would be exempt from the obligation to adopt a new transition plan.
• Regulated financial undertakings? The Proposal would remove the CS3D requirement on the EU Commission to report by July 2026 on the necessity to lay down additional due diligence requirements tailored to regulated financial undertakings. This clause had been a compromise after long negotiations on whether to include the financial sector in the CS3D's scope.
• Stakeholder engagement: The Proposal clarifies (and limits) who are to be considered relevant stakeholders and the stages at which stakeholder engagement will be required.
• Enforcement penalties loosened: In the current version of the CS3D, Member States are to provide for penalties, including financial penalties, for non-compliance, enforceable via nominated national supervisory authorities. Prior to the Proposal, it had been agreed that the Directive would include a maximum financial penalty of no less than 5% of a company's net worldwide turnover, but Member States were free to set this maximum higher. Having done away with this set cap, the Proposal states that guidance will be prepared to help supervisory authorities in determining the level of penalties to be imposed. It also mandates Member States to not impose a maximum limit on penalties that would stop them from being "effective, proportionate and dissuasive".
• EU-wide civil liability removed: The Proposal is to scrap the requirement that Member States put in place a civil liability regime to hold companies accountable for damage resulting from alleged failures to comply with due diligence. This would leave decisions on potential civil liability up to the national law of the individual Member States. Member States would also no longer be required to allow non-governmental organisations and unions to bring representative actions on behalf of victims (although Member States may still provide for this possibility). 

The EU Commission also published a Q&A on the Omnibus Package giving further information on the Proposal.

Outlook

The Proposal dated 26 February 2025 is just the start of the legislative process. The Proposal will now be submitted to the European Parliament and the Council for adoption. As the ordinary legislative procedure can be a lengthy process of up to 18 months, the EU Commission has asked the co-legislators to prioritise in particular the proposed changes to the CSRD, and, as mentioned, to fast-track the proposal that postpones the disclosure requirements under CSRD and the transposition deadline under CS3D, given the need for certainty on these deadlines for in-scope businesses. In this "fast-track" procedure, the European Parliament and the Council shall act on the simplification proposals without reopening other parts of the legislative acts. It remains to be seen whether a swift adoption will succeed. A similar approach was recently chosen with regard to the delay of the EU Deforestation Regulation.

As noted, the Proposal would significantly reduce the number of companies in scope of the sustainability reporting rules. It has been greeted with concerns in some quarters that it would lead to deregulation and a setback for the EU's sustainability objectives. The EU Commission has emphasised that the Omnibus Package does not undermine the EU Green Deal or water down the objectives of the respective legislative acts, including those covered by the Proposal. Whatever the sentiment of the different stakeholders on this point, the Proposal will no doubt be the subject of extensive debate as we move into the Council and Parliament negotiations.