Proposed changes to the EU ESG legislation: the first Omnibus package

Introduction
Recently, the European Commission proposed to simplify certain Environmental, Social and Governance (ESG) legislation in order to facilitate competitiveness and unlock additional investment capacity of the European Union. As part of the ESG legislation, the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD) and the EU Taxonomy for Sustainable Finance Regulation (EU Taxonomy Regulation) were adopted between the years 2020 and 2024.

The CSRD requires large and listed companies to disclose information on what they see as the risks and opportunities arising from social and environmental issues, and on the impact of their activities on people and the environment.

The CSDDD requires companies that meet certain thresholds to integrate human rights and environmental due diligence into their policies and risk management systems. This includes identifying potential risks, preventing and mitigating adverse impacts, providing remediation for actual harms, monitoring the effectiveness of their actions, and publicly reporting on their due diligence efforts.

The EU Taxonomy Regulation establishes a classification system that defines criteria for determining whether an economic activity qualifies as environmentally sustainable.

According to the European Commission, the aforementioned directives and regulation would help the financial market participants to evaluate the risks and impacts of their investments, and would direct investments towards sustainable projects and activities.

Draghi’s report and other developments
In 2023, the European Commission tasked Mario Draghi, former European Central Bank President, to prepare a report on the future of Europe’s competitiveness with his personal recommendations. In his revolutionary report[1], published in 2024, Draghi states inter alia that the EU’s sustainability reporting and due diligence framework, in particular the CSRD, the CSDDD and the EU Taxonomy Regulation, is a major source of regulatory burden, which needs to be simplified.

Furthermore, in 2025, the EU Heads of State and Government called for “a simplification revolution, ensuring a clear, simple and smart regulatory framework for businesses and drastically reducing administrative, regulatory and reporting burdens, in particular for small and medium-sized enterprises (SMEs).”

Eventually, the aforementioned developments, but also the war in Ukraine and trade tensions, led to the creation of the so-called Competitiveness Compass by the European Commission, which transformed recommendations of Draghi´s report into a strategic and clear framework for the Commission’s work on competitiveness. In this Competitiveness Compass, the Commission presented simplification of regulatory burdens as one of the enablers for competitiveness, which led to the first “Omnibus” package simplifying sustainability reporting, due diligence, and taxonomy.[2]

First Omnibus package
The first Omnibus package proposes significant changes to inter alia the CSRD, the CSDDD and the EU Taxonomy Regulation.

The main proposed changes to the CSRD are:

Postponing by two years the second and third waves of CSRD application to 2027 and 2028, respectively;
Reducing the number of undertakings subject to mandatory sustainability reporting requirements by about 80%, taking out of scope large undertakings with up to 1,000 employees and listed SMEs;
Extending and strengthening the value-chain cap by effectively limiting the information that large parent undertakings can request from small companies (with less than 1,000 employees) in their value chains;
Eliminating sector-specific reporting standards, reducing the number of required reporting datapoints;
Removing the possibility of moving from a requirement for limited assurance (a more basic level of verifying reliability and accuracy of the sustainability information disclosed by companies) to a requirement for reasonable assurance (a more thorough and in-depth verification);
Revising the European Sustainability Reporting Standards (ESRS), which specify the information that undertakings are to report, with the aim of substantially reducing the number of datapoints, clarifying provisions deemed unclear and improving consistency with other EU legislation.

The main proposed changes to the CSDDD are:

Tailoring the obligations for indirect business partners to focus on cases of circumvention or when there is information suggesting potential or actual adverse impacts;
Reducing the required frequency of the periodic monitoring exercises;
Clarifying and targeting the scope of stakeholder engagement;
Postponing by one year the transposition deadline for Member States;
Postponing the first wave of CSDDD application to 2028;
Advancing the deadline for adopting the general guidelines by the Commission, giving companies more time to take fully into account the best practices provided in these guidelines.

The main proposed change to the EU Taxonomy Regulation is:

Introducing an “opt-in” regime where some large undertakings shall only disclose their turnover and climate-related capital expenditure key performance indicators (CapEx KPIs), eliminating entirely the cost of compliance with the Taxonomy reporting rules for such large undertakings.

Heated debate in the European Parliament
After the introduction of the first Omnibus package by the European Commission, it was submitted to the European Parliament and the Council for their consideration and adoption. In the week of 10 March, European Parliament held the Omnibus debate, which revealed notable differences in opinion among the political parties. The European People’s Party (EPP), the largest, centre-right group, expressed support for the proposals and called for an urgent procedure to ensure they enter into force as soon as possible. The EPP also stressed the need for more simplification measures.

Socialists and Democrats (S&D), a centre-left group, acknowledged the need for simplification in general but criticized the proposals, claiming they do not deliver on simplification and are pure deregulation. Lara Wolters emphasised this by stating that “no company is leaving the EU because of sustainability reporting. <…> This House now has a responsibility to get things back on track, to deliver actual simplification.”

The Greens stressed that the proposals undermine the green transition. Kira Marie Peter-Hansen stated that these proposals penalise companies that have already invested in sustainability, while reward those that have slept on it.

The European Conservatives and Reformists Group (ECR) argued that this first Omnibus package represents only a small step forward. Sebastian Tynkkynen stated: “It is time to break the chains of too strict climate regulation, let businesses thrive and restore Europe to the top of the global economy.”

More of a consensus within the Council of the European Union
On the other hand, there seems to be more of a consensus within the Council of the European Union. In the same week, the Council generally supported the European Commission’s proposal, particularly the proposed delays for the application of the CSRD and the CSDDD. Italian, Dutch, and French finance ministers called for further extensions and adjustments, such as moving the threshold on CSDDD applicability to 5,000 employees and reinstating the civil liability clause in the CSDDD. Czechia suggested that the European Commission needs to aim for more than just 25% burden reduction. The European Central Bank and European Investment Bank also supported the proposal but stressed the importance of sufficient, consistent and comparable sustainability-related information for the private sector and public authorities.

Because of the significant differences in opinion within the European Parliament, it remains unclear whether or when the European Parliament and the Council, the two EU co-legislators, would reach an agreement on the proposals resulting in them entering into force.

Liza Avetyan and Tim Schreuders

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[1] https://commission.europa.eu/topics/eu-competitiveness/draghi-report_en#paragraph_47059
[2] Omnibus I - COM(2025)80 and 81, 26 February 2025