On February 26, 2025, the European Commission introduced the Omnibus proposal, signaling potential sweeping changes to two major regulatory frameworks: the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD). These changes, if implemented, will significantly alter compliance timelines, reporting thresholds, and due diligence requirements for businesses operating within the EU.
The proposal presents a mixed bag for corporations, sustainability professionals, and policymakers alike. While some see it as a welcome reprieve from onerous compliance demands, others are concerned that it could undermine the EU’s sustainability ambitions. This article delves into the core aspects of the Omnibus proposal, outlining its potential impact on businesses and sustainability governance.
Key Changes to the Corporate Sustainability Due Diligence Directive (CSDDD)
The CSDDD, a directive aimed at holding companies accountable for their human rights and environmental impact, is set to undergo significant modifications under the Omnibus proposal. The most notable changes include:
1. Compliance Deadline Extended to 2028
Originally, companies were expected to comply with the CSDDD by July 2027. The Omnibus proposal extends this deadline by one year, to July 2028. While this provides businesses with additional time to prepare, it also introduces regulatory uncertainty—companies must now decide whether to continue investing in compliance measures at the original pace or slow down in anticipation of further changes.
2. Narrower Scope: Focus on Tier 1 Suppliers Only
A fundamental shift in the directive is the limitation of due diligence requirements to Tier 1 suppliers. Previously, companies were expected to conduct risk-based assessments across their entire supply chain, ensuring responsible practices at multiple levels. Under the new proposal, the directive only applies to direct suppliers—a move that reduces the compliance burden but raises concerns about whether companies can still ensure sustainability and ethical practices deeper in their supply chains.
For example, under the current framework, a global fashion retailer would be responsible for conducting due diligence on raw material suppliers, textile manufacturers, and assembly plants. Under the Omnibus changes, the retailer would only need to assess its direct garment suppliers, potentially missing labor rights violations or environmental risks further upstream.
3. Reduced Due Diligence Frequency
Another significant change is that companies will only be required to assess the effectiveness of their due diligence measures every five years instead of annually. This means businesses will have longer intervals between formal compliance reviews, which could reduce administrative overhead but may also lead to weaker oversight of sustainability commitments.
4. Lower Financial Penalties for Non-Compliance
The Omnibus proposal also suggests a dilution of financial penalties for companies failing to meet due diligence requirements. While specifics remain unclear, this change could lessen the financial risk of non-compliance, potentially reducing the incentive for businesses to rigorously enforce sustainability measures.
Major Revisions to the Corporate Sustainability Reporting Directive (CSRD)
The CSRD, which mandates sustainability disclosures from large companies, is also set for major modifications. These proposed changes could dramatically shrink the number of companies subject to reporting obligations, making compliance more manageable for businesses but also raising questions about the EU’s commitment to corporate transparency.
1. Higher Reporting Thresholds: Fewer Businesses Affected
One of the most impactful changes is the increase in reporting thresholds. Under the original CSRD, more than 50,000 firms were expected to comply with sustainability reporting requirements. The Omnibus proposal raises the compliance bar, meaning only companies meeting the following criteria will need to report:
- A net turnover of at least €450 million
- More than 1,000 employees
This higher threshold will apply to both EU-based and non-EU firms operating in the EU market, drastically reducing the number of affected businesses to an estimated 5,000–6,000 firms.
For a practical example, a medium-sized logistics company with €300 million in revenue and 900 employees would have originally fallen under CSRD compliance. Under the new rules, it would no longer be required to submit sustainability reports, potentially saving significant time and resources.
2. EU Taxonomy Reporting Becomes Voluntary
The EU Taxonomy, a classification system designed to define sustainable economic activities, has been a challenging compliance area for many companies due to its complexity. The Omnibus proposal suggests making EU Taxonomy reporting voluntary, a move that could reduce the reporting burden for businesses struggling to classify their activities within the framework.
3. No Change to Double Materiality Reporting
Despite the simplification of some requirements, the double materiality principle—which requires companies to report on both financial materiality (impact on the business) and impact materiality (impact on society and the environment)—remains intact. This means that firms subject to CSRD will still need to assess and disclose sustainability-related risks and opportunities from both perspectives.
4. Reduced Reporting Requirements for SMBs in Value Chains
Previously, large corporations had to collect detailed sustainability data from small and mid-sized businesses (SMBs) within their supply chains. The Omnibus proposal removes this requirement, reducing the burden on SMBs that lack the resources to generate complex ESG data.
For instance, an automotive manufacturer that previously had to gather extensive environmental impact data from its small parts suppliers would no longer be obligated to do so.
5. Fewer Data Points and Simplified Reporting
There has been strong lobbying from businesses to reduce the number of European Sustainability Reporting Standards (ESRS) data points, as some 2024 CSRD reports have included more than 100 impacts, risks, and opportunities (IROs) and stretched over 400 pages. While the exact number of reduced data points is not yet finalized, it’s clear that reporting complexity will decrease.
Additionally, sector-specific sustainability reporting standards, which were originally set to be introduced by mid-2026, are now unlikely to materialize.
6. Assurance Requirements Dialed Back
CSRD originally planned for reasonable assurance (a higher level of external verification) by 2029, but under the Omnibus proposal, this is now deemed very unlikely. Companies will continue with limited assurance, a less stringent requirement that reduces compliance costs.
The Broader Implications of the Omnibus Proposal
The changes proposed in the Omnibus package represent a shift toward a more business-friendly regulatory environment. The new rules aim to strike a balance between ensuring sustainability accountability and avoiding excessive administrative burdens.
For large corporations, these changes could mean:
✔️ Less time and money spent on compliance
✔️ Fewer data collection and reporting obligations
✔️ Greater flexibility in ESG strategy implementation
For sustainability advocates, however, the Omnibus proposal raises concerns about:
❌ Reduced corporate accountability for environmental and human rights risks
❌ Weakened enforcement mechanisms due to lower penalties
❌ Delayed progress toward stronger ESG integration in business practices
Final Thoughts: A Step Back or a Strategic Adjustment?
The Omnibus proposal has sparked debate among sustainability leaders. Some welcome the relaxed requirements, believing they will allow businesses to focus on real innovation rather than compliance bureaucracy. Others worry that these modifications weaken corporate sustainability commitments and create uncertainty in an already evolving regulatory landscape.
Regardless of one’s stance, companies must remain vigilant and adaptive as EU regulators refine the final framework. The next few months will be crucial in determining whether these proposed changes hold or evolve further under political and industry pressure.
For businesses navigating this shifting ESG landscape, staying informed and proactively adjusting sustainability strategies will be key to long-term success.
