The EU Omnibus: resetting the rules on sustainability reporting

On 26 February 2025, the European Commission (“EC”) announced its first “Simplification Omnibus” packages targeting changes to, among other instruments, the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD).

In this briefing, we look in particular at what the Omnibus proposals—should they be met with agreement from the European Parliament and the Council—would entail for sustainability reporting under CSRD, which has been in force since July 2024, as well as the European Sustainability Reporting Standards (ESRS), and what this means for companies.

Sustainability reporting – proposed changes to CSRD

• Reducing scope and delaying applicability: The EC estimates that the number of companies within scope will be reduced by ~80%. CSRD currently applies to companies in four waves based on criteria including number of employees, total assets, net turnover, EU listing and EU presence. The proposal shifts the focus to the very largest companies by, for EU companies, introducing a new minimum number of employees threshold of 1,000: this means that the reporting requirements would apply only to large companies that have more 1,000 employees and either a turnover above EUR50m or a balance sheet above EUR25m. For non-EU companies, the EU turnover threshold is proposed to be significantly raised to EUR450m, and the EU branch revenue threshold is proposed to be raised to EUR50m. 

In terms of delay, the second and third wave reporting dates are proposed to be postponed by two years to 2028 and 2029, respectively, the purpose of which is to give smaller entities (which would ultimately be removed from scope) a reprieve from reporting in the meantime. The changes to scope and timing are set out in the table below.

• Limiting the value chain impact / minimising the “trickle down” effect: under the proposal, companies within scope of CSRD will be limited from seeking information from companies in their value chain (e.g., their suppliers) with fewer than 1,000 employees, where that information goes beyond what is contained within a voluntary reporting standard to be adopted by the EC (as a delegated act), which will be based on the voluntary standard for SMEs (“VSME”) developed by the European Financial Reporting Advisory Group (EFRAG).
• Maintaining limited assurance: whereas under CSRD, the requirement for third-party assurance was set to graduate pursuant to standards to be adopted by the EC in October 2028 from limited (i.e., mainly based on a company’s own statements) to reasonable (i.e., relying on the third-party’s examination and understanding of the company’s operations, processes and controls), under the proposal there will be no such graduation – assurance need only ever be limited. It is proposed that the EC will issue targeted guidelines to support the assurance process by 2026.
• Revising the ESRS: the EC intends to adopt a delegated act to amend the first set of ESRS with a view to substantially reducing the number of datapoints that companies must report on, for example by removing least important datapoints and prioritising quantitative datapoints over narrative text, as well as improving general clarity and consistency with other legislation.
• Forgoing sector-specific ESRS: the intention had been to build on the current, sector-agnostic, ESRS with sector-specific standards. Under the proposal, sector specific standards are dropped. 

What this means for companies

This is an unusual if not unprecedented event in EU lawmaking. Going forward, it will take time for the legislative proposals to be reviewed by the European Parliament and the Council before a final position is reached. Any changes to the CSRD would only enter into force once the co-legislative bodies have reached an agreement on the proposals and they are published in the EU Official Journal. It is expected that the proposal regarding the postponement to reporting for the second and third wave companies will be approved more quickly than the proposals for substantive changes, which could take possibly 12 to 18 months to conclude.

In the meantime, however, it is important to remember first wave companies are still required to report this year in respect of FY2024, even if those with fewer than 1,000 employees would ultimately be removed from scope if the proposals are passed. These first wave companies should keep in mind that the proposals do not change certain key aspects of the CSRD, including the requirement to undertake a “double materiality” assessment.

Businesses that were expecting to report in subsequent waves may well be minded to slow down their preparations, as they await clarity on whether they will remain in scope and, if so, what their reporting obligations will be. That is understandable. Nonetheless, businesses are well advised not to lose sight of the broader commercial benefits of good quality reporting on sustainability issues. For example, carrying out a CSRD-aligned double materiality assessment (that identifies both the sustainability risks and opportunities that are financially material to the business and the business’ material impacts on people and planet) is an excellent risk management tool – helping to surface and address risks that might otherwise have been obscured. It also provides strategic clarity, allowing businesses to streamline their sustainability efforts and investments and explain, with justification, which ESG issues they are focussing on and which they are not.

Having identified the ESG issues that are most important in the context of a particular business, having good quality, robust and verifiable baseline data, targets and action plans on those issues – information that can be reported externally or used proactively to engage key stakeholders – is also likely to be a sound investment, as lenders, investors and commercial counterparties will no doubt continue to be interested and hungry for ESG information relevant to their investments and supplier relationships. Any business that succeeds or fails based on the skills and experience of its people – particularly those businesses that need to sustain a healthy intake of next-gen talent – will also have a clear commercial incentive to report high quality sustainability information, whatever the ultimate size and shape of the CSRD.

For further guidance and tailored advice on the Omnibus packages, the CSRD or anything else discussed in this briefing, please get in touch with Kerry Stares or with your usual Charles Russell Speechlys contact.

 
[1] “Public-interest entities” are defined by Article 2(1) of the Accounting Directive as undertakings that are: (a) governed by the law of a Member State and whose transferable securities are admitted to trading on an EU regulated market; (b) credit institutions; (c) insurance undertakings; or (d) designated by Member States as public-interest entities.
[2]  “Large undertakings” are defined by Article 3(4) of the Accounting Directive as undertakings which on their balance sheet dates exceed at least two of the three following criteria: (a) balance sheet total: EUR25m; (b) net turnover: EUR50m; (c) average number of employees during the financial year: 250.
[3] Under Article 40a of the Accounting Directive, as amended by the CSRD, an undertaking not established in the EU must report sustainability information at the group level if it a) generates over EUR150m in the EU and b) has either a subsidiary in the EU that is subject to the sustainability reporting requirements introduced by the CSRD or has an EU branch that generated over EUR40m. In this case, the legal obligation to publish the report falls on the EU subsidiary or branch.