The Omnibus Legislation and CSRD: What Businesses Need to Know?

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.
  
  
• 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:

1. Avoid discouraging investment: The Commission suggests aligning company disclosure requirements with investor expectations to ensure clarity and reduce unnecessary effort.
   
   
2. 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.
   
   
3. 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 Legislation and the EU Position

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?

Speculation remains high about the Omnibus legislation’s final provisions, which will be officially revealed on February 26, 2025. While reporting standards and application requirements may change, companies must continue complying with existing obligations. Businesses should focus on:

• Conducting a double materiality analysis
• Developing a comprehensive carbon footprint assessment
• Implementing effective ESG data-gathering processes
• Keeping up with evolving regulatory requirements

Beyond these immediate actions, the broader debate on sustainability regulations continues. The financial burden of compliance and the urgency of carbon neutrality may lead to further adjustments in ESG requirements.

For instance, while France remains supportive of sustainability regulations especially through organizations like the French Association of Large Companies (AFEP), others within the EU have called for reducing or even eliminating certain extra-financial disclosures. In October 2024, the former French Prime Minister proposed a moratorium on CSRD compliance, seeking to delay ESG regulations by two to three years.

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.