Omnibus proposal: A regulatory reset or a green transition slowdown?

The proposal aims to:

• Reduce compliance complexity and associated costs.
• Align overlapping sustainability reporting frameworks.
• Protect small and medium-sized enterprises (SMEs) from excessive reporting burdens.
• Ensure proportionality in sustainability regulations.

Although still at the proposal stage, the package is expected to move through the legislative process swiftly, with potential amendments along the way.

Key Regulatory Changes

The ESG Omnibus significantly impacts three major sustainability regulations: the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), and the EU Taxonomy.

1. CSRD – Adjustments to Scope and Deadlines

• 80% of companies previously required to report under CSRD are now excluded.
• Reporting is now only required for companies with more than 1,000 employees and a turnover exceeding €50 million or a balance sheet total above €25 million.
• A two-year reporting delay applies to Wave 2 and 3 companies, shifting reporting obligations to 2028.
• Non-EU firms will now be required to report only if they generate €450 million+ turnover in the EU (previously €150 million).
• Sector-specific reporting standards have been removed.
• A revised European Sustainability Reporting Standards (ESRS) will feature fewer mandatory data points to simplify reporting obligations.

2. CSDDD – Refining Due Diligence Obligations

• Due diligence requirements will focus only on direct business partners (Tier 1).
• Financial penalties will no longer be tied to company turnover—each EU member state will determine fines.
• Due diligence on indirect suppliers is required only when credible sustainability risks are identified.
• SMEs will not be required to provide additional sustainability data beyond voluntary standards.

3. EU Taxonomy – Proportional Reporting for Large Companies

• Mandatory reporting will apply only to companies with over 1,000 employees and a turnover exceeding €450 million.
• Reporting is optional for large firms below the €450 million revenue threshold.
• Simplified reporting templates will reduce the reporting burden, cutting required data points by 66% for non-financial companies and 89% for financial institutions.
• Some key performance indicators (KPIs) for financial firms will be deferred until 2027.

Why this matters?

The proposal eases compliance for businesses but weakens sustainability oversight. With fewer reporting obligations, transparency and accountability may decline. Legal uncertainty arises for countries that have already enforced previous EU sustainability laws. This raises concerns about consistency in sustainability policies across the EU. A key question remains: 

Can the EU maintain its green transition while loosening regulations?

What should businesses do?

Keep ESG reporting practices in place, as sustainability remains a global priority. Stay updated on legislative changes as the Omnibus proposal is still under negotiation. Prepare for global ESG standards, as reporting rules outside the EU are becoming stricter. Engage in policy discussions to help shape the final regulatory framework. The final impact of the Omnibus proposal is still unclear. Companies should remain prepared for possible adjustments.

For companies still required to report:

• Monitor upcoming ESRS revisions and adjust sustainability strategies accordingly.
• Conduct a Double Materiality Assessment (DMA) to align sustainability reporting with core business priorities.
• Maintain preparations for climate and human rights risk assessments, which remain integral under EU regulations.

For companies no longer in scope:

• Leverage existing sustainability reporting frameworks to build a long-term ESG strategy.
• Consider adopting voluntary reporting standards to maintain transparency with stakeholders and investors.
• Assess market expectations, as many investors and business partners still expect ESG disclosures beyond regulatory requirements.

Next Steps and Expected Timeline

1. February 26, 2025: Proposal released.
2. Next 3-4 months: Legislative negotiations in the EU Council and Parliament.
3. Approval and publication in the Official Journal of the EU: Upon approval, member states will have 12 months to incorporate the directive into national law.
4. Revised ESRS standards: Expected six months after the directive is finalized.

Conclusion

The ESG Omnibus proposal represents a significant regulatory shift, easing compliance for many companies while maintaining key sustainability requirements for larger firms. Businesses should take this opportunity to refine their sustainability strategies and ensure they are prepared for the next phase of regulatory evolution. Staying informed and leveraging expert guidance will be crucial for adapting to the new regulatory landscape.

**CTA**