Omnibus proposed watering down of CSRD

On 26th February 2025, the European Commission published its first Omnibus package of reforms, part of a broader effort to amend recent regulations and enhance the competitiveness of European industry. The package proposes changes to several key frameworks, including the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), the EU Taxonomy Regulation, and the Carbon Adjustment Mechanism (CBAM).

The overarching goal of these reforms is to simplify reporting obligations and reduce administrative burdens. The European Commission believes that by reducing reporting burdens for companies and SMEs by 24% and 35%, respectively, it will allow European companies to remain competitive while still upholding the climate and decarbonisation goals of the Green Deal.

While the initiative has garnered support from various sectors seeking regulatory relief, it has also faced criticism from investors, environmental groups, and certain policymakers who fear that these changes may undermine corporate accountability and the EU’s sustainability objectives. The proposed reforms must undergo approval by the European Parliament and a majority of EU member states, where debates are expected to focus on balancing economic competitiveness with environmental commitments. This legislative process may lead to further amendments before final adoption.

Key Changes to the CSRD

A major shift in the CSRD’s scope has been proposed, with around 80% of currently in-scope companies no longer required to report. Under the new criteria, only companies with more than 1,000 employees (up from 250) and either a €50 million turnover or €25 million balance sheet total would need to comply. Additionally, the first reporting deadline for in-scope companies will be postponed by two years. The proposal also includes reductions in the number of mandatory data points in ESRS 1, a greater focus on quantitative data, clarification of ambiguous provisions, the removal of sector-specific standards, and a shift in assurance requirements from ‘limited’ to ‘reasonable.’

Another key element of the proposal is the introduction of a ‘value chain cap’, which would limit the sustainability information that large corporations and banks can request from smaller suppliers with fewer than 1,000 employees. This change is intended to reduce the administrative burden on SMEs and prevent them from being overwhelmed by complex sustainability data requests from larger businesses.

Impacts on Companies

If adopted, the Omnibus package would significantly reduce the number of companies required to report to the CSRD. This could lead to less visibility on corporate sustainability performance, which would potentially impact investor confidence and stakeholder trust in non-reporting companies.

The removal of sector-specific standards, along with the reduction in mandatory data points and assurance requirements, will help ease compliance burdens but may also lead to inconsistencies in how companies report sustainability performance. While this will lower costs and complexity for businesses, it could also weaken the comparability and reliability of corporate sustainability data, making it harder for investors, regulators, and consumers to assess corporate progress on climate commitments.

A particularly contentious element of the reforms is the introduction of the ‘value chain cap.’ While intended to shield SMEs from overwhelming reporting requests, it may create challenges for larger businesses seeking to manage Scope 3 emissions effectively. Without reliable supplier data, companies may struggle to meet their own sustainability targets and face increased scrutiny from investors and regulators.

Delaying the first reporting deadline by two years will give businesses more time to prepare, but it also postpones the broader transparency benefits that the CSRD was intended to deliver. This could slow down corporate sustainability progress in the EU, which in the current geopolitical climate could send the wrong signals, particularly as the US is dismantling its environmental regulations. Companies will need to assess how these changes impact their long-term sustainability strategies and stakeholder expectations, and find a way to balance regulatory compliance with voluntary sustainability leadership to maintain credibility.