Context of the Intended Omnibus Legislation
Since the introduction of the European Green Deal (EGD) in 2019, the European Commission has faced several challenges due to the broad and ambitious nature of its proposals aimed at reducing net greenhouse gas (GHG) emissions. Some sectors have deemed certain measures too stringent, leading to resistance and implementation setbacks.
Many EGD regulations focus on monitoring companies and their activities across the value chain. Given the complexity of these sustainability measures, European Commission President Ursula von der Leyen announced in November 2024 the upcoming Omnibus package (formerly known as the Omnibus Simplification Package). Its primary goal is to streamline and align various ESG reporting standards, particularly easing the financial and operational burden on Small and Medium Enterprises (SMEs) regarding extra-financial disclosures. The main frameworks affected by this initiative include the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CS3D), and the European Green Taxonomy.
For a clearer understanding of the Omnibus legislation’s objectives, here is a brief overview of these regulations:
CSRD: Replacing the Non-Financial Reporting Directive (NFRD), this extra-financial reporting standard, in force since January 2024, requires companies to disclose detailed Environmental, Social, and Governance (ESG) information. Enhanced by the European Sustainability Reporting Standards (ESRS) in 2023, it applies to large companies and listed SMEs with more than 250 employees. The commission defines the timeline of reporting as waves:
- First wave: Large public interest entities with more than 500 employees to report in 2025 for financial year 2024
- Second wave: Rest of the large undertakings with more than 500 employees to report in 2026 for financial year 2025
- Third wave: Listed SME’s with more than 250 employees to report in 2027 for financial year 2027
CS3D: Adopted by the European Parliament on July 5, 2024, the CS3D mandates companies to identify and mitigate environmental and human rights risks throughout their supply chains. It primarily applies to large EU and non-EU companies operating within the EU market, promoting responsible business conduct.
Member states have until July 26, 2026, to transpose this directive into national law. Its phased application will follow this timeline:
- From July 2027 : EU companies with more than 5,000 employees and €1,500 million worldwide turnover.
- From July 2028: EU companies with more than 3,000 employees and €900 million worldwide turnover.
- From July 2029: EU companies with more than 1,000 employees and €450 million worldwide turnover.
European Green Taxonomy: In force since July 2020, this classification system helps investors determine which economic activities are environmentally sustainable. It also supports companies subject to CSRD obligations in identifying and reporting sustainable activities.
What Is the Omnibus Legislation About?
On November 8, 2024, the Budapest Declaration on the New European Competitiveness Deal was introduced to enhance the EU’s global competitiveness amid ongoing geopolitical and economic challenges. A central element of this declaration was the “simplification revolution”, which aims to reduce administrative, regulatory, and reporting burdens by at least 25% for all companies and 35% for SMEs. This initiative compels national and local institutions to create simpler rules and accelerate administrative procedures.
To implement this simplification effort, a dedicated commission will coordinate and identify methods to streamline procedures. The Omnibus package is a key component of this initiative. For instance, the Omnibus package consists of three sub packages, each one with specific goals. The first Omnibus package (expected on February 26) focuses on simplifying extra-financial reporting, particularly in sustainable finance (CSRD), due diligence (CS3D), and taxonomy.
Asides from the first subpackage, the rest of the Omnibus package aims to:
- Avoid discouraging investment: The Commission suggests aligning company disclosure requirements with investor expectations to ensure clarity and reduce unnecessary effort.
- Prevent excessive reporting for SMEs: A “trickle down effect” mechanism is proposed to protect small companies in the value chain of large corporations, ensuring they meet minimum reporting obligations without unnecessary complexity.
- Introduce a new mid-cap category: A new classification, “small mid-caps”, would define businesses larger than SMEs but smaller than large companies. This aims to ease regulatory pressure by applying similar simplification measures as those designed for SMEs.
Ultimately, the Omnibus package seeks to streamline reporting requirements for mid-sized and small companies, reducing their financial and operational burdens. A proposed SME Competitiveness Check will be a long term methodology, to constantly assess company conditions and recommend additional simplification measures.
Omnibus first package
The publication of the first Omnibus package was done on February 26th, just as how it was previewed. The purpose of the publication is to clarify and define the simplification of the CSRD, CS3D and taxonomy, looking for a reduction of obligation mainly to the SME. Based on the communication published by the European Commission, the final takeaway ended up on postponing the entry for the application of the CS3D and certain provisions of the CSRD, asides from this, this where the rest of the key takeaways:
CSRD modifications:
- Number of undertakings subject to mandatory reporting will reduce by an 80%, retiring the mandatory status to the undertakings defined in the second and third wave, this referring to large undertakings with less than 1000 employees as well as listed SME´s with more than 250 employees
- For undertakings with no mandatory status, the commission recommends a voluntary standard which meanwhile will be based on the already established VSME standards for non listed SME’s while the commission works on a proposal of a voluntary reporting standard.
- Protect small companies by extending the value chain cap and limiting on what companies can report through their value chain
- Elimination of the sector-specific reporting standard and leaving only the sector agnostic standard
- The entry of application of reporting will be postponed by two years making the companies of the second and third wave have an additional window of 2 years to prepare their reporting
Taxonomy:
- Large undertakings with more than 1000 employees and a turnover above EUR 50 million or a balance sheet above EUR 25 million can be part of an opt-in regime which allows companies to claim that their activities are aligned with the EU taxonomy deleting the costs of compliance with the taxonomy reporting
CS3D:
- Reporting will be shifted by 2 years having the following reporting timeline:
- Large companies with more than 5000 employees and a total turnover of more than 1.5 billion euros will have to report from July 2027
- Companies with more than 3000 employees and more than EUR 900 million in their turnover will have to report from July 2028
- All other companies falling under the general scope will have to start reporting from July 2029
Position of the European Union
The Omnibus legislation has been proposed in response to calls from both the European Commission and several EU member states.
The CSRD’s extra-financial disclosure requirements have faced resistance from some countries. Currently, 17 member states including Germany, the Netherlands, Spain, and Portugal are facing infringement procedures for failing to transpose the CSRD by the deadline.
Germany, in particular, has requested significant reductions in reporting obligations, advocating for sector-specific exemptions and the consolidation of multiple reports into a single framework.
Member states have also expressed concerns about:
- Taxonomy: France has proposed simplifying reporting demands and reducing the amount of required information to maintain efficiency.
- CS3D: Although not yet in effect, some countries have called for narrowing its scope to facilitate broader support. Concerns over severe non-compliance penalties which could reach 5% of a company’s global turnover have fueled debate over its implementation.
What Comes Next?
Looking beyond February 26, the European Commission’s recently published 2025 Work Programme outlines further Omnibus packages which are all planned to be released on the Q1 of 2025:
- Omnibus I: Simplification of the extra financial reports (CSRD, CS3D and taxonomy).
- Omnibus II: Focused on simplifying reporting processes to stimulate strategic investment.
- Omnibus III: Aims to further define the mid-cap category to ease regulatory pressures on these businesses.
These discussions highlight a growing divide within the EU regarding ESG regulations. While uncertainty remains, companies must stay informed, ensuring compliance while preparing for potential regulatory shifts that may ease their reporting burden.
