EU confirms significant changes to sustainability rules in newly released Omnibus proposal

The European Commission has unveiled its keenly awaited Omnibus proposal aimed at simplifying sustainability rules The changes impact the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), and the EU Taxonomy, among other frameworks.

The European elections in June 2024 dramatically shifted political priorities. Green parties suffered heavy losses, and the European Parliament, along with key national governments such as France and Germany, reassessed the breadth of upcoming sustainability regulations. The Omnibus regulation, introduced by European Commission President Ursula von der Leyen, seeks to consolidate, streamline, and, in many cases, reduce the regulatory burden on businesses.

Key changes to the Corporate Sustainability Reporting Directive (CSRD)

A major revision to the CSRD includes a two-year “stop-the-clock” provision, allowing companies that have not yet reported but remain within the scope of the directive additional time to comply. Other key adjustments include:

Alignment of the CSRD and CSDDD scopes, ensuring consistency in sustainability regulations.
The removal of sector-specific reporting standards to simplify requirements.
A significant reduction in reporting obligations, freeing approximately 80% of companies from what has been described as “very burdensome reporting” by the European Commissioner.
A review of the European Sustainability Reporting Standards (ESRS) to streamline compliance efforts.
Postponing mandatory assurance requirements for medium-sized companies until 2030.

Revisions to the Corporate Sustainability Due Diligence Directive (CSDDD)

Under the Commission’s proposals, CSDDD will focus only on direct business partners rather than the entire value chain. Additional modifications include:

Extending the assessment intervals from one to five years, easing compliance requirements.
Implementing a more proportionate penalty regime, removing the previous linkage to net turnover.
Eliminating EU-wide civil liability provisions, though companies will still be held accountable under Member State laws.
Postponing the application of sustainability due diligence requirements for the largest companies until 26 July 2028.
Providing Member States with greater flexibility in implementing due diligence rules at the national level.

EU Taxonomy: Streamlining reporting for large businesses

The revised proposal significantly narrows the scope of EU Taxonomy reporting obligations, limiting them to “very large companies” with over 1,000 employees. This shift aligns the reporting requirements with the CSRD and CSDDD, exempting around 80% of companies from compliance. Additional changes include:

Allowing companies to voluntarily report on partially aligned activities to facilitate gradual environmental transitions.
Introducing a financial materiality threshold for reporting.
Reducing reporting templates by 70%.
Simplifying the “Do No Significant Harm” (DNSH) criteria to ease compliance, particularly for pollution prevention and control related to chemical usage.
Adjusting the Green Asset Ratio (GAR) for banks, excluding exposures from companies with fewer than 1,000 employees and €50 million in turnover.
Extending the transition period for companies to adjust to the revised taxonomy requirements.

Carbon Border Adjustment Mechanism (CBAM) simplifications

The Commission has also announced adjustments to the CBAM to ensure a fairer trade environment while reducing burdens on small businesses. Key changes include:

Exempting small importers (mostly SMEs and individuals) that import less than 50 tonnes of CBAM goods annually. This is expected to eliminate CBAM obligations for approximately 182,000 importers while still covering 99% of emissions within scope.
Streamlining authorisation processes and reporting obligations for companies that remain within CBAM’s scope.
Strengthening anti-circumvention measures to enhance CBAM’s effectiveness ahead of its anticipated expansion in early 2026.
Introducing a phased implementation for CBAM obligations to support businesses in adapting to the new framework.

Other changes introduced by Omnibus

Beyond sustainability reporting, the Omnibus proposal includes amendments to EU investment programmes, particularly InvestEU, which supports priority investments in competitiveness, decarbonisation, and sustainability. The revisions aim to:

Increase EU investment capacity by leveraging returns from past investments and optimising the use of remaining funds.
Mobilise approximately €50 billion in additional public and private investments.
Simplify administrative procedures for financial intermediaries and SMEs, with an estimated €350 million in cost savings.
Enhance funding mechanisms for green and digital transformation projects.

What happens next?

The Omnibus package will now enter the normal EU legislative process and be reviewed by the European Parliament and the Council. Several key factors will influence the outcome:

The anti-Green sentiment within the EU Parliament and among major EU countries, particularly France and Germany, remains strong.
The German elections at the end of February 2025 will be crucial. If the Greens are excluded from the next German government, there will be few remaining political defenders of the Green New Deal within the EU’s key decision-making bodies.
Many companies have already begun preparing for ESG compliance, raising the question of whether rollbacks will be practical or if a compromise will be reached.

The EU’s ESG regulatory landscape is undergoing a significant transformation. What was once an ambitious agenda for corporate sustainability is now facing serious cutbacks. While some level of ESG reporting will remain, the scope and scale of these requirements are likely to be greatly reduced in the coming months.

The primary question now is how much of the original Green New Deal will survive after the final Omnibus negotiations. Given the current political climate, it appears that Europe is moving toward a more business-friendly, less burdensome ESG framework—at least for the foreseeable future.

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