The European Commission's Omnibus announcement on February 26th delivered weakened versions of the previously expansive Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD). The proposals also announced changes to the EU Taxonomy, Carbon Border Adjustment Mechanism (CBAM) and investment programs. As many reacted, what the European Commission is advertising as ‘simplification’ is, in fact, significant deregulation from its original form.
There is no doubt that responding to emerging ESG legislation can be challenging, this is especially true for organisations which are in scope for multiple regulations and have complex legal structures. While clearer guidance and standardisation across regulations would have been preferable, these proposals introduce substantial changes that challenge the EU’s Green Deal and sustainability commitments.
What is the EU Omnibus?
The EU Omnibus package sought to alleviate administrative burdens and boost competitiveness. In 2024, The Draghi report made recommendations on how Europe could boost its competitiveness and growth in the coming years, and the EU Omnibus built on these recommendations. Draghi raised concerns that the EU’s sustainability reporting and due diligence frameworks are a regulatory burden for organisations.
Two proposals were announced by the European Commission:
Omnibus I - amending CSRD and CSDDD as regards the dates from which Member States are to apply certain corporate sustainability reporting and due diligence requirements.
Omnibus II - increasing the efficiency of the EU guarantee under Regulation (EU) 2021/523 (investment programs) and simplifying reporting requirements.
What are the key changes in the EU Omnibus proposals?
CSRD
- The number of companies in scope for reporting cut by 80%.
- Reporting deadlines delayed by 2 years for certain businesses.
- Sector-specific standards scrapped.
CSDDD
- Focus limited to direct suppliers only (not the whole supply chain).
- Less frequent assessments required.
- Civil liability remains, but the uniform framework across the EU eliminated.
EU Taxonomy
- Only applicable to companies with >1,000 employees.
- Exempts c.80% of companies - mandatory reporting is now optional.
CBAM
- Full implementation delayed from 2026 to 2027.
- More time to prepare but weakens EU’s leadership on carbon pricing.
*Not an exhaustive list of changes
What happens next, and could they change again?
In short, it looks highly likely that the amended Directives will be adopted. However, the European Commission announced proposals that will be reviewed by the European Parliament and the European Council, who will then negotiate and adopt a position and negotiate. The first EU Omnibus proposal, which relates to date changes, will likely be adopted by the end of the year. The second proposal may take longer to reach its final form but could come into force by early to mid-2026. Member states will then have a year to transpose the final text into national law.
The Directives are also in line with the stated goals of the European Commission, they have a target of at least a 25% reduction in administrative burdens and at least 35% for SMEs before the end of their mandate (30 November 2029).
A critical look at the EU Omnibus
In addition to diluting the regulations from their original form, the opaque process through which this has been done has been widely criticised. Despite some big businesses publicly advocating for the regulations, none of these were invited to the European Commission-hosted stakeholder roundtables in early February. The oil and gas sector, on the other hand, was well represented.
The EU Commission’s proposals further entrench the view that organisations have the choice of either being sustainable or being competitive; these are not mutually exclusive pursuits. Companies which invest in sustainable business practices will be more competitive, resilient and profitable in the long run. For example, the benefits of due diligence of indirect suppliers, which the CSDDD advocated in its original form, can have significant business benefits, including opportunities to improve supply chain resilience, reduce costs and defend against reputational damage.
Rather than fostering a competitive environment, the EU Commission is creating instability through a confusing legislative landscape, making it harder for businesses to adapt and eroding trust by rolling back regulations it was once praised for. Whilst the EU may want to align itself to the recent trend of deregulation in other parts of the world, it should also remember that in the past, it has been seen as a pioneer for climate and sustainability progression. Additionally, a number of investors before the formal announcement said that changes to legislation could impede investment and create legal uncertainty for many organisations.
As well as thinking about achieving compliance, lots of businesses have acted in good faith when thinking about CSDDD, CSRD and others in their initial forms. ESG frameworks and Directives give sustainability advocates a significant lever when promoting sustainable business practices within their organisations and externally (e.g. with suppliers). It’s disappointing that this lever feels less significant after the announcement, yet that good faith should also guide what those organisations do next.
Reasons to be optimistic about the ESG landscape
The regulations still exist. Whilst not as expansive as what they once were, they still create obligations which in-scope organisations must comply with. Beyond minimum compliance, they can still provide an accelerator for businesses to deeply embed sustainability into their processes and culture.
The EU Commission, in its proposals, spoke of reducing the burden on organisations, yet many have been performing ESG due diligence and reporting for many years. Influential businesses such as Unilever and Nestle were among the companies who expressed concern before the announcement of the legislation being diluted. It’s encouraging to hear these voices and provides a counterbalance to the EU Commission’s narrative on competitiveness and what businesses want. Legislation encouraging more organisations to perform ESG due diligence and reporting also creates a more level playing field and provides an opportunity to tackle issues at an industry level, e.g. visibility beyond tier 1/direct suppliers.
Smaller businesses may indeed feel a burden of relief given many of the obligations they had have now been scrapped, yet they will still face pressure if they are part of the value chains of larger, in-scope organisations.
What are the next steps for organisations following the new EU Omnibus proposals?
The next steps will depend on a number of factors, however, it makes sense for all organisations to take stock of the announcement and assess where they currently stand under the proposals - e.g. are they in scope based on the new thresholds? There is still some uncertainty over timings, for example, how long the negotiation with the European Council and the European Parliament will take - organisations should continue to monitor developments over the coming months.
Organisations should continue to plan for how they meet ESG obligations. This shouldn’t be viewed solely through the lens of compliance; customers, investors and other key stakeholders will still be watching the behaviours and practices of organisations closely. These businesses would do well to use the additional time they have to plan and iterate their approach.
The reality is that many businesses have already invested time and money into thinking about their obligations under these Directives for some time. It’s also important to remember that the areas the Directives were trying to help rebalance, such as social inequality and the climate crisis, are not going away, irrespective of any EU Omnibus announcement. Lots of organisations and the people they employ have deeply held convictions about the role businesses can play in addressing some of these issues.
Conclusion
Don’t lose momentum. Those who have ESG obligations and are already starting to embed sustainability into their business practices should continue on this journey. For those thinking about investing time and effort into this space, take stock of where you currently are and think about the full value chain of your business. Embedding sustainability throughout your supply chain to your customers’ experiences can be commercially advantageous as well as the ‘right thing to do.’
We should remain optimistic - it’s positive that businesses are thinking about their full value chain and its impacts, so don’t lose hope because of this setback.
Want to know more about how to navigate ESG legislation within your organisation? Check out our guide here or get in touch to speak to one of our experts.
Key takeaways:
- The EU Omnibus significantly weakens sustainability regulations
The European Commission's "simplification" efforts have reduced the scope and obligations of the CSRD, CSDDD, EU Taxonomy, and CBAM. This represents a shift toward deregulation that undermines previous sustainability commitments. - Despite regulatory rollbacks, ESG remains a business imperative
Companies that continue to invest in sustainability will benefit from improved resilience, cost savings, and a stronger reputation. It’s also important to continue to hear the voices of pro-sustainability businesses, which are well-placed to counter arguments from the European Commission and others. - Businesses should maintain momentum on ESG efforts
While compliance requirements may have eased, investors, customers, and stakeholders still expect organisations to uphold sustainability commitments. Companies should use this time to refine their ESG strategies and ensure they remain competitive in a future increasingly shaped by sustainability concerns.
