EU Omnibus: What Now?

The EU has been a forerunner when it comes to sustainability linked regulation, but following the release of the Draghi Report in 2024, in which it was argued that the European block is in desperate need of investment to boost competitivity compared to its global peers, The European commission set out its ‘Simplification Omnibus.’

The measures, partly informed also by pressure from countries such as Denmark, Germany and France, as well as various business groups such as BusinessEurope, are designed to simplify the sustainability reporting requirements for companies to reduce burdens, stoke investment, and promote economic growth. The Omnibus proposal came out officially on the 26^th, calling for far-reaching changes to CSRD, CSDDD & the EU Taxonomy.

Overview of Proposed Changes

Corporate Sustainability Reporting Directive (CSRD)

• Implementation Delay: Companies initially set to report in 2026 and 2027 will have their reporting deadlines extended by two years. This aims to give businesses additional time to produce high-quality sustainability data for investors and stakeholders.
• Narrowed Reporting Scope: Only large enterprises with over 1,000 employees and either €50 million in turnover or €25 million in total assets will be required to comply with CSRD. This adjustment reduces the number of affected businesses by approximately 80%.
• Voluntary ESG Reporting for VSMEs: A voluntary sustainability reporting standard will be introduced for very small and medium-sized enterprises (VSMEs), minimizing the reporting burden on firms with fewer than 1,000 employees and restricting excessive data requests from larger CSRD-covered companies.

Corporate Sustainability Due Diligence Directive (CSDDD)

• Focus on Direct Suppliers: Companies within the scope of CSDDD will only be required to conduct due diligence on their direct suppliers, rather than their entire supply chain. This shift is intended to improve transparency and accountability while reducing complexity for businesses.
• Lower Compliance Frequency: Companies with more than 500 employees will now be required to assess supply chain impacts once every five years instead of annually. Additional reviews will be conducted only when necessary.

EU Taxonomy

• Optional Reporting for Certain Companies: Large businesses under the future CSRD scope (more than 1,000 employees and turnover up to €450 million) will have the option to report on EU Taxonomy alignment voluntarily rather than mandatorily. However, non-EU companies with significant EU business operations must continue to meet the same CSRD sustainability reporting requirements as EU firms.
• Simplified Reporting Framework: The complexity of Taxonomy reporting will be significantly reduced by simplifying reporting templates and cutting the number of required data points by nearly 70%. Companies will also be exempt from reporting on financially immaterial activities (those contributing to less than 10% of turnover, capital expenditure, or total assets).
• Changes for Financial Institutions: Adjustments to the Green Asset Ratio (GAR) will allow banks to exclude exposures to companies that are no longer required to report under the revised CSRD framework.

Some Context

The Omnibus has not been a straightforward process and there remains much disagreement across the bloc. At the beginning of the year German Chancellor Olaf Scholz, speaking about the EU’s sustainability rules, suggested that "in its current form, the benefits on this directive are not aligned with the bureaucratic effort for the companies."

Conversely, the Ministry of Foreign Affairs of Finland has suggested that firms are not much concerned about over-regulation or lack of competitiveness, but about lack of guidance, conflicting requirements, and many uncertainties, while Spain and Italy also called for the rules not to be watered down, stating that the EU has shown strong leadership in this area and backtracking would lose soft power (Reuters 2025).

Beyond the bloc, especially in the US, new regulatory environments complicate the picture further. The new US Commerce Secretary, Howard Lutnick, raised the extraterritorial effect of the EU’s sustainability rules on US businesses, suggesting they are a “serious concern” that “impose unreasonable burdens on our companies.” (renewablematter.eu).

There is further disagreement and genuine uncertainty on the impact these regulations have on businesses at an operational level, made all the murkier by the fact that they A. haven’t been fully implemented yet and B. there hasn't been enough time to conduct robust analysis on their impacts.

Cost or Value?

What belies all of this is a changed economic environment. Just a few years ago the EU’s Green transition seemed unstoppable, but inflationary pressures and cost of living concerns have altered the business environment, prompting a change in attitude. The fundamental narrative is one in which reporting requirements are framed as burdens that are stifling economic growth: i.e. costs. Such a conception of a fundamental trade-off misses the point entirely. There are very real economic opportunities that arise from the EU’s sustainability rules: i.e. value creation.

Granted, there are no one-size fits all approaches to how businesses create value from sustainability disclosures and due diligence requirements. Businesses should, like all other matters, take a contextually led approach to discovering how their value chains and sustainability matters intersect, because there are very real ways that value can be created using sustainability data. To do this, firms and financial market actors need access to certifiable, comparable and robust data, but the changes brought forward by the omnibus appear to undermine these needs.

Though EU officials have argued that these measures are designed to help companies and investors implement the rules in the real-world, others, such as the chief sustainable systems officer Nathan Fabian of the Principles for Responsible Investment, have suggested that the proposals will “materially reduce’’ access to the information investors need (IPE 2025).

Sustainability data should be seen just like any other kind of data: as business intelligence. If we agree that sustainability related issues are financially material for businesses - which the Omnibus appears to do by retrenching double materiality as a key concept - then the more data we have, the more informed our decisions can be.

It is not only that businesses can use sustainability data to make more informed decisions, find new markets or innovate new products, but in trying to meet the needs of reporting, new business is created, new knowledge formed, and new innovations found. Over time, the burden of reporting will reduce as firms understand best practices, innovate, and utilise a growing selection of automated tech tools to streamline reporting, acquisition, and analysis. AI is a huge opportunity here.

Undoubtedly these reporting requirements do have tangible impacts on business, but the extent to which they are stifling competitivity is unclear. We believe that making this connection is creating the wrong narrative.

Changing the Narrative

We need a narrative of growth that reinforces the long-term value creation, risk mitigation, and resilience building capacities that sustainability reporting and due diligence can bring to firms. Properly accounting for externalities and utilising a data led approach to understand your financial exposure to climate related risks is good business sense. Reporting requirements are not definitively a cost and framing them as such creates an environment where we solidify reporting as anti-growth. This, considering the scale of the challenge ahead, is not where we need to be.

So: What Now?

The EU Omnibus represents a key juncture in sustainability regulation, one where businesses and policymakers must decide whether to see reporting requirements as an obstacle or as an opportunity. While it is undeniable that compliance introduces new complexities, framing sustainability reporting purely as a cost undermines the broader economic potential it unlocks.

The ability to collect, analyse, and act on sustainability data is no longer just a regulatory necessity, it is a strategic advantage. Those that recognize this will be best positioned to mitigate risks, drive innovation, and capture emerging market opportunities. Over time, as best practices, automation, and AI improve reporting efficiency, what once seemed like a burden will become second nature to us.

The outcomes of the omnibus are not the final chapter. Ultimately, the challenge is not the regulations themselves but the way we approach them. Instead of resisting sustainability reporting, businesses should embrace it as an investment in resilience, transparency, and long-term value creation.

Sources:

Brief_BK_vdL_02012025.pdf

BusinessEurope proposes targeted actions to comprehensively reduce regulatory burden | BusinessEurope

EU countries split over whether to delay green reporting rules | Reuters

Investor groups split over omnibus | Analysis | IPE

The US is threatening a war against European ESG directives Materia Rinnovabile | Renewable Matter