Sustainability Simplified? The Scope of the Omnibus Proposals

Following the publication of the European Competitiveness Compass ^[1] on 26 February, the European Commission adopted a set of proposals to simplify some EU regulatory frameworks with the goal of increasing the EU's competitiveness and investment capacity.

On 29 January 2025, the European Commission published the European Competitiveness Compass, which aims to establish a new strategic vision to strengthen the European Union's position in the world economy. ^[2]
Following this first official announcement,^[3] on 26 February 2025, the European Commission adopted a set of proposals to simplify some of the EU's regulatory frameworks with the goal of increasing the EU's competitiveness and investment capacity. One of the main objectives of the omnibus proposals is to simplify and reduce administrative burdens for companies by at least 25% and for SMEs by at least 35%.

The omnibus I and II proposals

The first omnibus proposals (Omnibus I^[4] and Omnibus II^[5]) bring together a set of measures covering several interrelated legislative areas. These proposals introduce extensive legislative simplification in areas such as sustainability reporting, sustainability due diligence, the EU taxonomy, the carbon border adjustment mechanism and european investment programmes, namely:^[6]

i. A proposal for a directive amending the CSRD and CS3D;

ii. A proposal that postpones the application of all the reporting requirements laid down in the CSRD for companies due to submit them in 2026 and 2027, and that postpones the transposition deadline and the first wave of application of the CS3D by one year (to 2028);

iii. A proposal for a regulation that would amend the Taxonomy Delegated Acts (level 2 rules), subject to public consultation;

iv. A proposal for a regulation amending the Regulation on the Carbon Border Adjustment Mechanism; and

v. A proposal for a regulation amending the InvestEu Regulation.

Generally speaking, the changes introduced in the area of sustainability aim to harmonise and align the different legislations, recognising that although they have different objectives, they are mutually complementary.

In this regard, the scope of the CSRD, CS3D and Taxonomy will essentially be the same, i.e. the same companies will be covered by these laws, and the focus will shift to large companies, which have a more significant impact on the environment and sustainability issues.

However, despite the scope of the proposed changes, the omnibus proposals maintain the double materiality requirement. Thus, companies that remain within the scope of the CSRD, CS3D and Taxonomy will continue to be obliged to report both the impact of sustainability risks on their business and the effects of their own operations on people and the environment.^[7]

Simplifying the CSRD

The CSRD currently applies to all large companies, defined as those that exceed two of the following thresholds: 50 million euros in net turnover, 25 million euros in balance sheet total or 250 employees. In addition, it also covers SMEs whose securities are listed on a regulated market in the European Union.

However, the omnibus proposal provides for a reduction in the scope of the CSRD, limiting the scope of the directive to large companies with more than 1,000 employees. In other words, only companies with more than 1,000 employees and a turnover of more than 50 million euros or a balance sheet total of more than 25 million euros will remain subject to the reporting obligation. These companies will continue to be bound by the European Sustainability Reporting Standards ("ESRS"), which will also be revised and simplified. Companies excluded from the new scope of the CSRD will be able to choose to submit voluntary reports, based on the voluntary standards for SMEs (VSME) drawn up by EFRAG.

The European Commission estimates that this proposal will allow for an 80% reduction in the number of companies covered by the CSRD.

The simplification of CS3D

The proposed amendments to the CS3D provide for more time for companies to prepare for the application of the new regulatory framework, postponing the transposition deadline by one year to 26 July 2027, as well as the first phase of application of the sustainability due diligence requirements for large companies, which will be extended to 26 July 2028.

In addition, the proposed amendments remove the obligation to systematically carry out in-depth assessments of adverse impacts regarding indirect trading partners. In this context, full compliance with the due diligence requirements concerning the value chain for indirect trading partners could only be demanded when there is plausible information indicating the existence or potential risk of adverse impacts.

The set of proposals also aims to reduce the trickle-down effect by limiting the information that companies covered by the CS3D can request from their business partners, namely SMEs, to the information specified in the CSRD's voluntary sustainability reporting standards (the VSMEs). This restriction will only not apply if companies need additional information to carry out their assessment, namely on impacts not covered by the VSMEs, and cannot obtain this data in any other reasonable way.

The simplification of the Taxonomy

The omnibus proposals introduce the option of reporting on activities partially aligned with the EU taxonomy, enabling and supporting a progressive environmental transition over time.

It is also planned to create a financial materiality threshold for reporting information on the taxonomy, as well as reducing the reporting templates by approximately 70%.

In addition, simplifications are proposed in relation to the more complex criteria of the "do no significant harm" (DNSH) principle regarding the prevention and control of pollution associated with the use and presence of chemicals, applicable across the board to all economic sectors covered by the EU's taxonomy.

The proposals also seek to adjust key performance indicators, including the Green Asset Ratio (GAR) applicable to banks, allowing them to exclude from the GAR denominator exposures associated with companies that do not fall within the future scope of the CSRD, namely companies with fewer than 1,000 employees and a turnover of less than 50 million euros.

Next steps

The legislative proposals will now be presented to the European Parliament and the Council for consideration, negotiation and possible adoption after agreement between the institutions, which is not expected to be easy given the conflicting public positions expressed so far. The amendments relating to CSRD and CS3D will enter into force after agreement on the proposals and their publication in the Official Journal of the EU.

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