The European Commission announced today the release of its first “Omnibus” package, containing a series of proposals to reduce sustainability reporting requirements for companies, including plans to remove 80% of companies from the scope of its Corporate Sustainability Reporting Directive (CSRD), and limiting the sustainability information that large companies and banks can request from smaller companies.

In addition to the CSRD, the proposals introduce major simplifications and scope reductions for the EU’s key sustainability reporting regulations, including the Corporate Sustainability Due Diligence Directive (CSDDD), the Taxonomy Regulation, and the Carbon Border Adjustment Mechanism (CBAM).

Many of the most significant measures proposed are targeted at smaller businesses, in alignment with the recent release by the Commission of its “Competitiveness Compass” aimed at boosting Europe’s productivity and global competitiveness, which included goals to reduce reporting burdens by at least 25% for all companies, and 35% for SMEs.

The Commission said that it anticipates the new Omnibus proposals will create annual administrative cost savings for companies of approximately €6.4 billion, including €4.4 billion from the changes to the CSRD.

The CSRD, based on new underlying European Sustainability Reporting Standards (ESRS), introduces detailed reporting requirements on company impacts on the environment, human rights and social standards and sustainability-related risk. The directive took effect from the beginning of 2024 for large public-interest companies with over 500 employees, with the first reports being issued in 2025, which were to be followed by companies with more than 250 employees or €50 million in revenue in the following year, and listed SMEs one year later.

Under the new proposal, however, only companies with more than 1,000 employees and either revenue greater than €50 million net turnover or a balance sheet above €25 million would be included in the scope of the CSRD, removing an estimated 80% of companies from the regulation’s sustainability reporting requirements.

For smaller companies, the EU plans to introduce voluntary sustainability reporting requirements, based on the voluntary standards for SMEs (VSME) recently released by EFRAG. The VSME standards will also be used as a limit for the detail of sustainability information that banks or larger companies can request from smaller companies in their value chains.

In addition to the move to remove most companies from the CSRD, the Commission also plans to revise the ESRS, with the aim of substantially reducing the number of data points required by the sustainability reporting standards, and that it will not introduce planned sector-specific standards, or require reasonable assurance under the CSRD.

The CSDDD sets out obligations for companies to identify, assess, prevent, mitigate, address and remedy impacts on people and planet – ranging from child labor and slavery to pollution and emissions, deforestation and damage to ecosystems – in their upstream supply chain and some downstream activities such as distribution and recycling. The legislation was adopted in May 2024, but only after a long process that ultimately required revisions in the legislation that significantly scaled back the number of companies covered by the law, and extended the timeline to its full implementation.

Notably, the Commission chose to retain the CSRD’s double materiality reporting approach, requiring reporting both on the risks and impact of sustainability issues on an enterprise, as well as on the enterprises’ impacts on environment and society.

Key changes proposed by the Commission to the CSDDD include delaying the application of the directive by a year for large companies to July 2028, requiring full due diligence only at the level of direct business partners, unless the company has plausible information of adverse impacts further down the value chain, and reducing the frequency of monitoring the effectiveness of due diligence from annual to every 5 years. The new CSDDD proposal also introduces a VSME-based limit on information that can be requested from small companies, and adds other measures to ease the burden on companies such as removing the obligation to terminate the business relationship as a last resort measure.

The EU Taxonomy established a classification system enabling the categorization of economic activities that play key roles in contributing to at least one of six defined environmental objectives, and that Do No Significant Harm (DNSH) to the other objectives, in order to help mobilize capital flows to sustainable investments and support the financing of the sustainable transition. The six objectives include climate change mitigation, climate change adaptation, sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control, and protection and restoration of biodiversity and ecosystems.

Under the Commission’s new proposal, the Taxonomy would only be mandatory for companies with revenues greater than €450 million, with voluntary reporting for smaller companies looking to access sustainable finance. The proposals also place a heavier emphasis on transition finance, with a new option to allow companies to report on partial Taxonomy-alignment. The Commission will also introduce amendments aimed at reducing data points required by the Taxonomy templates by nearly 70%, and exempting companies from assessing Taxonomy-eligibility and alignment of their economic activities that are not financially material for their business.

CBAM is a carbon tax on imported goods, aimed at equalizing the carbon price paid by European producers with those outside the EU, and avoiding “carbon leakage,” a situation in which companies move production of emissions intensive goods to countries with less stringent environmental and climate policies.

The most significant change to CBAM announced by the Commission is the introduction of a new threshold eliminating 90% of importers from the scope of the regulation. Despite removing approximately 182,000 importers, however, the Commission said that more than 99% of emissions will still be covered by CBAM. The new proposals also include simplifications around the calculation of emissions and other reporting requirements.

The new proposals will be submitted to the EU Council and Parliament, entering force after an agreement is reached between the bodies, with the Commission requesting that it be treated as a priority.

Ursula von der Leyen, President of the European Commission, said:

“Simplification promised, simplification delivered! We are presenting our first proposal for far-reaching simplification. EU companies will benefit from streamlined rules on sustainable finance reporting, sustainability due diligence and taxonomy. This will make life easier for our businesses while ensuring we stay firmly on course toward our decarbonisation goals. And more simplification is on the way.”