Green, But Lean: EU Eases Sustainability Rules Without Ditching Climate Goals

On 26 February 2025, the European Commission published the Omnibus Simplification Package, a set of proposals designed to streamline key EU sustainability regulations, eliminate redundancies, and reduce administrative burden and compliance costs for companies — while preserving the EU’s ambitious environmental objectives. 

If adopted in the currently proposed form, companies will have more time to comply with the CSRD reporting requirements and the CSDDD supply chain due diligence obligations. In fact, the Omnibus Simplification Package proposes postponing by two years the entry into application of the CSRD reporting requirements for companies that have not yet started implementing the CSRD (i.e. large companies and listed SMEs), while the new CSDDD framework is postponing by one year the transposition deadline (to 26 July 2027) and the first phase of the application of the sustainability due diligence requirements covering the largest companies (to 26 July 2028).

The Omnibus Simplification Package also proposes to revise the scope of the CSRD and the CSDDD. The reporting requirements under CSRD would only apply to large undertakings with more than 1,000 employees (i.e. undertakings that have more than 1,000 employees and either a turnover above €50 million or a balance sheet total above €25 million) and the CSDDD due diligence obligations would be significantly narrowed down, in particular by limiting them to direct contract partners. 

While many businesses welcome the reduced regulatory burden as well as its postponement, some critics argue that it weakens corporate accountability and dilutes transparency efforts. In any event, the Omnibus Simplification Package is still at a proposal stage and is set to spark intense debate in the EU Parliament and Council, with global stakeholders—including the U.S.—closely monitoring the developments and trying to influence them to meet their own goals. 

This alert provides insights into the most relevant proposed changes to CSRD and CSDDD and what those mean for businesses operating under the EU’s evolving sustainability framework.

The Omnibus Simplification Package presented by the European Commission includes:

• A proposal for a Directive, the sole content of which is to postpone the application of reporting requirements in the CSRD for certain groups of companies and the transposition deadline as well as the first wave of application of the CSDDD (Omnibus Directive I).
• A second proposal for a Directive amending the actual content of and obligations under the CSRD and the CSDDD (Omnibus Directive II).
• A draft Delegated act amending the Taxonomy Disclosures and the Taxonomy Climate and Environmental Delegated Acts subject to public consultation.
• A proposal for a Regulation amending the Carbon Border Adjustment Mechanism Regulation.
• A proposal for a Regulation amending the InvestEU Regulation. 

Proposed changes to the CSRD

Postponement of the Starting Date for Reporting for Certain Companies

The Omnibus Directive I proposes a two-year postponement of the implementation of reporting requirements for companies in the second and third waves (see table below) This is to allow the European co-legislators to find agreement on the Commission's proposal for substantive changes as provided in the Omnibus Directive II.  

This postponement is intended to give companies some legal certainty and prevent a scenario where companies would be required to report for the financial year 2025 (second wave) or 2026 (third wave), only to be later relieved from reporting duties if and when the Omnibus II Directive with its higher thresholds is approved. No amendments to the timeline have been proposed for wave four non-EU ultimate parent companies; as a result, those companies continue to be required to report for the first time in 2029 for financial year 2028 (but may opt to report on a consolidated group basis before). Companies already covered in the first wave seem to have to continue reporting on the basis of the existing CSRD – the Omnibus Proposal does not mention any postponement of their duties.

According to Article 3 of the proposed text of the Omnibus Directive I, Member States shall implement the provisions of the Directive by 31 December 2025 at the latest. This indicates that the Commission is assuming that the Omnibus Directive I will be approved quickly by the European legislators – while the content-related Omnibus Directive II may well take considerably longer to get through the legislative process.

In this framework, wave 2 companies currently required to report in 2026 for FY 2025 will have to consider the timing of their preparations for CSRD readiness: once the Omnibus I Directive is approved the postponement will still need to be transposed into national laws to become effective, but (a) we expect Member States to be fairly quick since there seems to be broad agreement about the postponement (in contrast to the content related proposals of the Omnibus Directive II) and (b) we would argue that the postponement would have a pre-effect, which would make it very difficult for Member States to implement current CSRD obligations and impose fines before the new starting date. 

New Scoping Thresholds 

According to the proposed text of the Omnibus Directive II, only large companies or parent companies of large groups with more than 1,000 employees (individually or in the case of a holding company on a consolidated basis) will be required to prepare sustainability reports under Article 19a and 29a of the Accounting Directive. 

That change in itself would reduce the number of undertakings subject to mandatory sustainability reporting requirements by about 80%. In comparison to the current requirements (see table below for details), the new employee threshold would lead to some of the undertakings in the first and second wave and all undertakings in the third wave (listed SMEs) falling out of the scope of the CSRD should Omnibus Directive II be approved. 

In addition, the threshold for EU turnover for non-EU parent companies has been raised from €150 to €450 million, and the threshold for an EU branch from €40 to €50 million. These amendments in the reporting thresholds are meant to more closely align the CSRD with the CSDDD, which already only applies to companies above the 1,000 employee and €450 turnover threshold.

Reducing the Trickle-Down Effect by Limiting the Information That Companies Within Scope May Request From Smaller Companies in Their Value Chain

The CSRD requires undertakings to report value-chain information to the extent necessary for understanding their sustainability-related impacts, risks and opportunities. 

The current CSRD establishes a so-called value-chain cap, which states that the European Sustainability Reporting Standards (ESRS) may not contain mandatory reporting requirements that would require undertakings to obtain information from SMEs in their value chain that exceeds the information to be disclosed under the proportionate standard for listed SMEs.

The proposed Omnibus Directive II extends this value chain cap from SMEs to companies up to 1,000 employees. In turn the Commission is proposing to adopt simplified standards for voluntary use by out of scope companies having fewer than 1,000 employees, based upon the current simplified standard prepared for non-listed SME by EFRAG, that such companies can use as a shield to limit their response to  information requests from banks, large companies and other stakeholders in scope of the CSRD. 

Revision of the ESRS

The range of sustainability topics covered by the current ESRS is not changed by the proposed Omnibus Directive II and, despite speculation, the double materiality requirement is not removed. The Commission has proposed to revise the delegated regulation (EU) 2023/2772 establishing the ESRS with the aim to reduce the number of mandatory ESRS datapoints, by removing those deemed least important for general purpose sustainability reporting and further distinguishing between mandatory and voluntary datapoints, and to further enhance the already very high degree of interoperability with global sustainability reporting standards. 

According to the text of the Omnibus Directive II, the Commission will adopt the revised ESRS delegated act in time for those undertakings in wave 2 - which according to the proposed new timelines would be required to start reporting under the CSRD in 2028 for FY 2027 -  to apply the revised standards. 

Deletion of Sector Specific Standards

The Omnibus Directive II proposes to delete the empowerment for the Commission to adopt sector-specific reporting standards (currently due on 30 June 2026) to avoid a further increase in the number of prescribed datapoints that undertakings should report on and facilitate the reporting process. Should undertakings require additional guidance to report on sustainability matters common to the specific sector in which they operate, the Commission specifies that they may have recourse to existing international sustainability reporting standards and sectoral sustainability reporting initiatives. 

No Move to Reasonable Assurance

The Commission is currently mandated to adopt reasonable assurance standards by October 1, 2028, based on an assessment of their feasibility for companies. However, the draft of Omnibus Directive II is intended to eliminate this requirement, ensuring that no reasonable assurance standards are introduced and that assurance over CSRD reports remains at the limited assurance level. 

Since the amount of work for a limited assurance engagement is significantly less than for a reasonable assurance engagement, this is designed to save companies cost and time: a limited assurance engagement is usually provided in a negative form (stating that no matter has been identified by the assurance provider to conclude that the subject matter is materially misstated) while the conclusion of a reasonable assurance engagement would have to be provided in a positive form (providing an opinion on the measurement of the subject matter against previously defined criteria). In addition, the Commission committed to issue targeted assurance guidelines by 2026. 

Voluntary Taxonomy and Partial Taxonomy-Alignment Reporting Option

By virtue of Article 8 of the Taxonomy Regulation undertakings reporting under the CSRD also publish information about the eligibility and alignment of their economic activities with the EU Taxonomy. The proposed provisions in the Omnibus Directive II create a derogation for companies with more than 1,000 employees and an EU turnover below EUR 450 million by making the Taxonomy reporting voluntary. However, companies that have made progress toward sustainability targets but only partially meet EU Taxonomy requirements may choose to voluntarily report their partial alignment. This allows them to showcase their efforts, demonstrate progress toward full compliance, and gain recognition for their commitment to sustainability.

Proposed changes to the CSDDD 

Postponement of Applicability of CSDDD and Scope

With respect to CSDDD, the Omnibus Directive I proposes to postpone the transposition deadline by one year to 26 July 2027 (instead of 2026). The Omnibus Directive I also postpones the compliance deadline for the first wave of companies (i.e. those that have more than 5,000 employees and report a net annual worldwide turnover of more than €1.5 billion), which would therefore have to comply with the CSDDD from 26 July 2028 onwards. There is however no change regarding companies that were already meant to comply with the CSDDD from 26 July 2028, or later from 26 July 2029. In addition, the Commission proposes to bring forward the publication of its guidelines for compliance with due diligence obligations under the CSDDD to July 2026, instead of January 2027.

Indirect Business Partner Assessment No Longer Required and Suspension of the Business Relationship as Last Resort

The Omnibus Directive II limits the due diligence measures to the companies’ own operations, those of their subsidiaries and, where related to their chains of activities, those of their direct business partners thus excluding the assessment at the level of indirect business partners.  

However, such assessments of indirect business partners will still be required if the company has plausible information that suggests that adverse impacts have arisen or may arise at the level of the operations of an indirect business partner. According to the recitals of the Omnibus Directive II, ‘plausible information’ means information of an objective character that allows the company to conclude that there is a reasonable likelihood that the information is true, for example if it has received a complaint or is in the possession of information, notably via credible media or NGO reports about harmful activities at the level of a business partner, reports of recent  incidents, or where the company through its business contacts knows about problems at a certain location (e.g., conflict area). 

In addition, the proposal Omnibus Directive II removes the duty to terminate the business relationships in the case of both actual and potential adverse impacts. Should a company assess that the business operations of such a supplier are linked to severe adverse impacts, for instance child labour or significant environmental harm, and the company has unsuccessfully exhausted all due diligence measures to address these impacts, as a last resort the company should suspend the business relationship while continuing to work with the supplier towards a solution, where possible using any increased leverage resulting from the suspension. Irrespective of the termination duty being removed, companies can of course still decide to terminate for severe breaches.

Extended Interval for Periodic Assessments and Updates

In order to reduce the burden on companies and their business partners (which are often SMEs), the Omnibus Directive II proposes to extend to five years (instead of each year) the requirement that companies carry out a periodic assessment of their (and their business partners’) operations and measures to assess the adequacy and effectiveness of due diligence measures.

However, companies will still be required to conduct such assessments ad hoc whenever there are reasonable grounds to believe that the measures are no longer adequate or effective, or that new risks of occurrence of adverse impacts may arise. 

Reduced Requirements for Climate Change Mitigation Plans

As a result of the Omnibus Directive II, while companies will still be required to adopt a climate change mitigation plan, such a plan would no longer have to be “put into effect” as required by the CSDDD but rather include an “outline of implementation actions planned and taken”.

Reducing the ‘Trickle-Down’ Effect on SMEs 

To avoid unnecessary burdens on SMEs, the Omnibus Directive II intends to limit the information that companies may request in the context of their risk-mapping obligations from their direct business partners with fewer than 500 employees, to the information covered by the voluntary sustainability reporting standards (VSME) set out under the CSRD.

Extension of Maximum Harmonization Requirements

In order to ensure a more uniform transposition of the CSDDD, the Omnibus Directive II extends the scope of maximum harmonization of the CSDDD to several additional provisions that regulate the core aspects of the due diligence process. In practice, this means that Member States will be prohibited from enacting diverging national provisions regarding certain key requirements, including the identification duty, the duties to address adverse impacts that have been or should have been identified, and the duty to provide for a complaints and notification mechanism.

Changes to the Civil Liability Provisions

The Omnibus Directive II proposes to remove the specific EU-wide civil liability regime provided in the CSDDD, including the obligation for Member States to allow representative actions by trade unions or NGOs. Instead, under the Omnibus Directive II, Member States would remain free to provide such rules in their national laws.

Financial Penalties

The Omnibus Directive II removes the minimum cap for financial penalties (5% of net worldwide turnover in the preceding financial year) currently stated in the CSDDD and the requirement that the fine be assessed based on the company’s net worldwide turnover. The Commission will issue guidance to assist Member States’ supervisory authorities to set the appropriate level of penalties to be imposed, provided that Member States are prohibited from setting maximum limits of penalties that would prevent the imposition of penalties in accordance with the principles and factors set out in the CSDDD. 

Deletion of the Review Clause for Financial Services

The Omnibus Directive II proposes to remove the CSDDD’s financial services review clause, which currently commits the Commission to submit by 26 July 2026 a report to the European Parliament and to the Council on the necessity of setting up due diligence requirements for the financial services sector. Indeed, according to the European Commission, this review clause did not leave enough time to take into account the experience on the general due diligence framework under the CSDDD.

Omnibus Directive II and policy considerations on the future of simplification measures 

With respect to all the simplification measures and changes proposed in the Omnibus Directive II, which would substantially impact the scope and way of reporting under the CSRD and conducting due diligence under the CSDDD as explained above, Article 5 of the current proposal text provides for a deadline of 12 months for Member States to implement the directive into national law once the Directive enters into force. However, the European Commission’s publication of the proposal initiates a complex and lengthy process involving negotiations, amendments, and further discussions across multiple EU institutions, which creates uncertainty around the legislative timeline. 

In particular, the proposal will need to be debated and approved by Members of the European Parliament and Member States at the Council of the EU. The political landscape in Europe has deeply changed since CSRD and CSDDD were adopted (respectively, November 2022 and May 2024), and there is  a much stronger focus on competitiveness, economic growth, and simplification. 

In the European Parliament, the majority center-right European People’s Party welcomed the Omnibus Proposal and supports the process of cutting regulatory burdens on companies. Members of the second largest group, the Socialists&Democrats, oppose significant rollbacks of sustainability regulations, emphasizing the importance of environmental protection and corporate accountability. In particular, Lara Wolters, CSDDD rapporteur, stated that the group “cannot accept the watering down of sustainability, labour and human rights standards in the CSDDD and CSRD”. The debate in the European Parliament is likely to be lengthy and heated. 

In Council, most of the Member States are aligned with the Commission’s approach of simplifying EU regulations. Germany and France have previously advocated for delaying and easing the implementation of the rules, calling for a concrete postponement of CSRD and suggesting increasing thresholds for company size and turnover in both CSRD and CSDDD. In contrast, Spain supports maintaining robust environmental reporting standards, underlining the importance of due diligence requirements: while the Spanish government support delaying the application of CSRD, it insists that these rules become mandatory for all companies eventually. Italy has also shown limited opposition to the proposed amendments, suggesting that rules should immediately apply to larger companies and delays and more favorable requirements should be adopted for smaller businesses. However, and given Council’s position on CSDDD in the previous legislative term, it is possible that Member States will adopt a negotiating mandate in line with the Commission’s proposal. 

European policymakers will inevitably need to keep an eye on the potential actions of the U.S. government. Twenty-six U.S. states have sent a letter to President Trump urging retaliatory measures against the CSDDD due to its extraterritorial impact beyond Europe. The letter calls on the United States Trade Representative to launch an investigation under Section 301 of the Trade Act of 1974 to assess whether the CSDDD constitutes an unreasonable or discriminatory measure that burdens or restricts U.S. commerce.

Additionally, another letter sent to Congress urges U.S. officials to push for an indefinite suspension of the directive’s implementation based on the following argumentation lines: The directive mandates extensive supply chain due diligence based on UN and OECD principles, which have not been ratified by the U.S. Congress. It also disregards U.S. corporate governance standards. Finally, US companies are not bound by net zero transition plans akin to those imposed on the UE companies, as requested under the CSDDD. 

At K&L Gates, we have direct access to the latest developments within EU institutions and closely monitor evolving legislative processes. We can assist you in influencing EU policy and regulatory developments, and adapting your compliance strategy to ensure your company remains prepared for new requirements and deadlines.