Introduction

Sustainability reporting requirements in the EU have been subject to significant change in recent years with the introduction of the Corporate Sustainability Reporting Directive, which replaced the previous Non-Financial Reporting Directive for 31 December 2024 years ends for the first ‘wave’ of entities that were within its scope together with the related EU Taxonomy, and the Corporate Sustainability Due Diligence Directive (CSDDD) which is yet to come into force. Under current legislation, additional companies will be brought within the scope of the CSRD and EU Taxonomy for the years ending 31 December 2025, 2026 and 2028.

In January 2025, the European Commission published its Competitiveness Compass for the EU. This set out the European Commission’s plans for the next five years and its vision for strengthening the EU’s competitiveness and making the EU’s economy more prosperous. Key elements that were identified included the need to simplify the regulatory environment in the EU and reduce the reporting burden. Targets were set of cutting the administrative burden by at least 25% for all companies and by at least 35% for small and medium sized entities (SMEs).

On 26 February 2025, the European Commission published its first Omnibus package of proposals to simplify and streamline reporting requirements while maintaining transparency and compliance that is consistent with the European Green Deal. The proposals include changes to the scope and timing of adoption of the CSRD, EU Taxonomy and CSDDD.

The proposed changes are expected to lead to significant cost savings for financial and non-financial undertakings, with estimated annual savings of EUR 4.4 billion from the CSRD/ESRS amendments and additional savings arising from changes to the CSDDD and taxonomy reporting.

Key amendments and simplifications

The proposals published by the European Commission include:

CSRD
 
  • Reduced scope:

The threshold for the scope of the CSRD would change to large undertakings with more than 1000 employees, reducing the number of in-scope undertakings by about 80%. This would align the scope of the CSRD more closely with that of the CSDDD, bringing consistency between the two pieces of legislation.

Smaller large companies not subject to mandatory reporting could choose to report voluntarily using simplified standards to be published by the European Commission, based on the Voluntary SME standard developed by EFRAG.
 
  • Postponement of reporting requirements:

The CSRD's current phase-in of reporting requirements is as follows:
 
  • Wave 1: large public interest entities with more than 500 employees, which must report for the first time in 2025 for the year ended 31 December 2024; 
  • Wave 2: all other large undertakings, which must report for the first time in 2026 for the year ending 31 December 2025; 
  • Wave 3: SMEs with securities listed on EU regulated markets, which must report in 2027 for the year ending 31 December 2026, with the possibility to defer adoption for a further two years. 

It is proposed to postpone the reporting requirements for wave 2 and wave 3 companies by two years. This is to prevent undertakings from coming into scope under current requirements and then falling out of scope again due to the subsequent changes in thresholds, having already incurred costs to prepare a sustainability report.
 
  • Revision of the ESRS:

The European Commission will revise the first set of the ESRS to simplify and reduce reporting requirements, and enhance coherence with the sustainable finance framework. The aim is to adopt the revised ESRS Delegated Act within six months of the proposed CSRD amendments. The revision will reduce the number of ESRS datapoints, clarify requirements which are considered unclear, improve consistency with EU legislation, and provide clearer guidance on applying the materiality principle. Interoperability with global standards will also be enhanced. The proposed ESRS revision will reduce the reporting burden for all undertakings and help alleviate the trickle-down effect on SMEs and smaller large companies outside the scope of the CSRD.
 
  • Sector-specific standards:

The CSRD initially mandated sector-specific reporting standards to enhance comparability and provide guidance on sustainability matters within specific sectors. However, due to concerns about increased disclosure requirements and additional reporting burdens, the European Commission proposes eliminating this mandate, allowing undertakings to focus on implementing the sector-agnostic ESRS and referring to existing sector-based international standards for additional guidance.
 
  • Value-chain cap:

The current CSRD aims to protect smaller undertakings in supply chains from facing excessive reporting requests by way of a so-called a value-chain cap. This states that the ESRS may not contain reporting requirements that would require undertakings to require more value chain information from SMEs than what is required to be disclosed in accordance with the listed SMEs (LSME) standard.

At the request of the European Commission, EFRAG has submitted a voluntary SME standard (VSME), for voluntary use by SMEs that are not within the scope of the CSRD. Under the proposals, the VSME standard will act as this cap, replacing the LSME standard, and will also protect undertakings with fewer than 1000 employees from excessive sustainability information requests.
 
  • Assurance requirements:

The CSRD requires undertakings to publish sustainability information with the opinion of a statutory auditor or (depending on Member State options) an independent assurance service provider. To limit the burden, the European Commission proposes removing the possibility of moving from limited to reasonable assurance. In addition, instead of developing an assurance standard, the European Commission will issue targeted assurance guidelines by 2026.


Taxonomy
 
  • Undertakings required to report in accordance with the EU Taxonomy:

It is proposed that the assessment of Taxonomy eligible and aligned activities would only be required for those activities which are financially material for an entity’s business. This would be achieved by an assumption that activities are not material if their cumulative value is less than 10% of the KPI’s denominator.

The reporting templates would be simplified with, for example, a reduction in reported data points of 89% for credit institutions.

 
  • Voluntary and partial EU Taxonomy reporting:

New Articles 19b and 29aa are proposed which would allow large undertakings and parent undertakings of large groups with net turnover under EUR 450 million to opt-out of Taxonomy reporting. Those undertakings that did choose to report in accordance with the EU Taxonomy would be required to disclose their turnover and CapEx KPIs, and may (but would not be required) to disclose their OpEx KPIs.
In addition, those entities would also be permitted to report only some of the information that is specified by the Taxonomy.

CSDDD
 
  • Postponement of the transposition and initial application of the CSDDD (Article 37)  and acceleration of implementation guidelines (Article 19(3)):

It is proposed to delay the transposition deadline for Member States from July 2026 to July 2027 and the application date for the first wave of companies from July 2027 to July 2028. Simultaneously, the adoption of general guidelines will be advanced to July 2026. These guidelines will be intended to help companies implement due diligence in a cost-efficient manner, reducing legal costs and ensuring consistency across the industry.
 
  • Expanding maximum harmonisation in the CSDDD (Article 4):

The amendments proposed to Article 4 of the CSDDD aim to extend maximum harmonisation to additional provisions, including identification duties, addressing adverse impacts, and providing complaints procedures. This extension seeks to ensure a uniform application across Member States, reducing procedural variations and compliance costs for companies operating in multiple countries. However, the amendments acknowledge the legal limits of full harmonisation in a cross-sectoral framework, particularly in areas of social and environmental protection.
 
  • Limiting due diligence to direct partners:

The proposals would limit an entity’s due diligence obligations to direct (tier 1) business partners, relieving companies from assessing impacts at the level of indirect partners unless there is plausible information suggesting potential adverse impacts. This approach reduces the burden on companies and their partners, particularly SMEs, while still requiring in-depth assessments when necessary.
 
  • ‘SME shield’ for limiting information requests (Article 8 CSDDD):

To map adverse impacts in the value chain, large companies should limit information requests from their SME and SMC (small midcap companies with not more than 500 employees) direct business partners to what is specified in the voluntary sustainability reporting standards (the VSME standard) under Article 29a of the CSRD. Additional information can only be requested if it is necessary and cannot be obtained by other reasonable means. This proposal aims to reduce the trickle-down effect and indirect compliance costs for SMEs and SMCs.
 
  • Removing the termination obligation (Article 10(6) and Article 11(7) CSDDD):

The proposed amendments to the Directive remove the obligation for companies to terminate a business relationship as a last resort after all due diligence steps have been exhausted and failed, and if the impact is severe. Instead, companies are required to suspend the relationship. This change reduces burdens by allowing the contractual relationship to remain intact during suspension and avoiding the need to find alternative suppliers, while still enabling companies to leverage improvements in business practices from their partners.
 
  • Simplifying stakeholder engagement (Article 13):

The proposed amendments to the CSDDD simplify the definition of 'stakeholder' (Article 3(1)(n)) to include only workers, their representatives, and individuals and communities ‘directly’ affected by the company's operations.
Additionally, companies are required to engage with ‘relevant’ stakeholders only at each specific stages of the due diligence process.
This approach reduces the burden on companies by limiting the types of stakeholders that need to be consulted and ensuring that engagement is focused on relevant groups. However, companies may still choose to consult with broader groups, like NGOs, to gain additional insights.
 
  • Reducing the frequency of periodic assessments and possible updating of due diligence policy and measures (Article 15):

The proposal extends the frequency of periodic assessments and updates of due diligence policies from 1 year to 5 years, aiming to reduce average annual costs by up to 80%. However, it acknowledges that business relationships and risks may evolve over time, necessitating updates when new business lines, products, services, or acquisitions occur. While this change reduces the burden on companies and their business partners, it also recognises the importance of monitoring to ensure the effectiveness of measures taken, with companies needing to judge whether more intensive monitoring is in their interest based on their risk mapping.
 
  • Removing the 'put into effect' requirement for the climate plan and aligning it with the reporting regime:

The proposal eliminates the requirement to 'put into effect' the transition plan for climate change mitigation, aligning it with the sustainability reporting regime by ensuring the plan includes implementation actions beyond key actions to reach climate targets, providing further clarity for businesses.
 
  • Removing the 5% turnover minimum cap for pecuniary penalties (Article 27(4)): 

The proposed amendments eliminate the 5% of turnover as a minimum cap for pecuniary penalties, establishing a general principle that Member States must not set a cap preventing supervisory authorities from imposing penalties in accordance with the Directive's factors and principles. This change aims to ensure a level playing field in the EU market by reinforcing a harmonised approach to fines and providing greater legal security for businesses exposed to high potential fines.
 
  • Removing EU-Level civil liability and deleting access to justice facilitations (Article 29):

The proposed amendments eliminate the EU-wide civil liability regime and the requirement for Member States to allow victims to be represented by civil society associations before courts. This change leaves companies under the applicable liability regimes of the Member States, potentially reducing liability risks in jurisdictions. However, the overall risk reduction will depend on the liability conditions in other jurisdictions. The removal of access to justice facilitations may reduce the burden on companies but could lead to more fragmented court cases with individual victims suing companies separately.
 
  • Removing the review clause for financial services and the investment activities of regulated financial undertakings (Article 36(1)):

The proposal would delete a review clause in Article 36(1), which required the Commission to report on the need for additional due diligence rules for financial services by 26 July 2026. This clause was initially introduced to consider the financial sector's role in supporting sustainability transitions. The deletion of the review clause is proposed because the deadline does not allow time to assess the new due diligence framework's effectiveness. The Commission retains the right to propose new due diligence rules for financial sector if necessary.

The Omnibus documents are available on the European Commission website at link.