The European Commission has released its much-anticipated proposal to streamline and simplify corporate sustainability rules. The Omnibus package introduces significant changes to the scope, timelines, and other compliance aspects of the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), and the EU Taxonomy. The Carbon Border Adjustment Mechanism (CBAM), the EU’s carbon border tax, is also part of the regulatory overhaul.

The simplification is part of efforts by the EU to increase European competitiveness and decrease regulatory complexity and compliance burdens. According to the Commission, the Omnibus package will make sustainability reporting more effective and efficient, simplify due diligence for responsible business practices, and unlock opportunities in European investment programs.

The Commission also signaled that simplifying compliance rules doesn’t mean its commitment to sustainability and decarbonization has diminished. Simultaneously with the EU Omnibus, the EU Commission presented the Clean Industrial Deal, which aims to boost clean energy adoption, especially in energy-intensive industries. Measures include establishing an Industrial Decarbonization Bank with €100 billion in available funding and relaxed rules for state aid for clean energy projects.

What are the most important changes included in the proposal?

If approved by the European Parliament and Council and transposed into national laws, the Omnibus will profoundly change the EU’s sustainability regulatory ecosystem. The most important changes include the following:

  • Companies will get more time to prepare to comply: For most companies, CSRD, EU Taxonomy, and CSDDD compliance timelines will be extended.
  • The number of companies required to do mandatory reporting will shrink significantly: The CSRD will cover 80 percent fewer companies than intended in the original directive. The scope of mandatory EU Taxonomy reporting and number of companies affected by CBAM will also be significantly reduced.
  • Companies will be required to report fewer data points: The EU Omnibus will substantially reduce the number of data points for CSRD reporting, making data requirements clearer and more comparable. EU Taxonomy data points will be reduced by two-thirds.
  • Supply chain due diligence will be more focused: Companies covered by CSDDD will have diminished capacity to request information from smaller direct suppliers and will not be required to scrutinize indirect suppliers unless there are clear indications of harm.
  • Assurance requirements and enforcement mechanisms will be weakened: The proposal removes the plans for the Commission to elevate the limited assurance requirement for CSRD reporting to reasonable assurance. Meanwhile, CSDDD reduces litigation exposure for companies, especially related to suppliers working on corrective action plans.
  • Role of voluntary reporting may become more prominent: Companies left outside the revised scope of CSRD and EU Taxonomy are encouraged to turn to voluntary reporting, with the Commission planning to publish a simplified standard.
  • Smaller companies will be protected from excessive reporting demands: The proposal introduces a “value-chain cap” to ensure that small and medium-sized companies are spared the burden of excessive reporting and shielded from information requests from larger companies that fall within compliance scope.

What specific modifications are proposed to CSRD, CSDDD, and the EU Taxonomy?

The changes the Omnibus introduces are most significant for CSRD. It proposes significantly reducing the number of companies that fall within scope, lowering expectations for the volume of reported data, and pushing out compliance timelines.

Proposed changes to the CSRD

The changes to the CSDDD shift the focus to large suppliers and stakeholders that companies are most directly involved with. This relieves the compliance burden for companies and their indirect and small suppliers.

Proposed changes to the CSDDD

The Omnibus also proposes changes to the EU Taxonomy. CSRD-regulated companies will have to report in accordance with the EU Taxonomy if they have more than 1,000 employees and a €450 million turnover. The EU also published draft amendments to the EU Taxonomy and is seeking feedback.

Proposed changes to the EU Taxonomy

Finally, the EU Commission also proposes changes to CBAM, the EU carbon border tax. The Omnibus substantially reduces the number of companies CBAM applies to by exempting companies importing less than 50 metric tons per year. The Commission argues that this change will reduce by 90 percent the number of companies that have to report while continuing to cover 99 percent of emissions.

What are the next steps?

To take effect, the proposed changes must be approved by the European Parliament and the Council and then transposed into national laws. The Commission has proposed to fast-track this process to expedite the timeline for providing clear guidelines to companies.

If approved, the new rules will substantially reduce regulatory requirements for companies. It will enable the transition from reporting being treated mostly as a compliance burden to a strategic exercise that helps companies improve their market positioning and resilience. The changes will also strengthen the role of voluntary reporting, especially for companies that will remain out of scope for regulatory requirements.

ERM will continue to track regulatory developments and provide more detailed interpretation and recommendations for companies by our leading experts in a webinar and policy briefing.