European Commission Omnibus aims to cut red tape and simplify business environment

At a glance

• The European Commission adopted proposals on 26 February 2025 to simplify sustainability reporting and sustainability due diligence requirements.
• Proposed changes to the Corporate Sustainability Reporting Directive (CSRD) include reducing the scope of reporting companies, postponing reporting requirements, and revising the EU sustainability reporting standards.
• Proposed changes to the Corporate Sustainability Due Diligence Directive (CSDDD) include extending the deadline for transposition and application, reducing assessment obligations, and simplifying due diligence requirements.
• The legislative proposals will be submitted to the European Parliament and Council for consideration, with businesses encouraged to assess their compliance strategies in light of the proposed changes.

On 26 February 2025, the European Commission adopted proposals aimed at making the EU's economy more prosperous and competitive. The Commission has launched an 'Omnibus package' of simplification measures which include changes to make sustainability reporting more accessible and efficient and to simplify due diligence that supports responsible business practices.  

The Corporate Sustainability Reporting Directive and the Corporate Sustainability Due Diligence Directive, both of which have employment implications, are affected by the Commission's proposals.

Background

The CSRD was introduced to modernise and strengthen rules on reporting of environmental, social and governance information by in-scope companies. The Directive is supplemented by the EU sustainability reporting standards (ESRS) which specify the required content and presentation of CSRD sustainability reports.

Other than where a topic is assessed as non-material, the ESRS require reporting on matters such as a company's own workforce (S1), workers in its value chain (S2), communities it affects (S3), its consumers and end-users (S4), and its business conduct (G1). From a human resources perspective, the topics to be reported are wide ranging and include policies relating to the company's own workforce, collective bargaining coverage, diversity metrics, training and skills development metrics, health and safety metrics, work-life balance metrics, and compensation metrics. The ESRS also require information about the channels a company's workers, workers in its value chain, affected communities, consumers and end users can use to raise concerns about the company's sustainability.

The CSDDD imposes a duty for companies to prevent adverse human rights and environmental impacts within its own operations and across its value chain. Human rights 'adverse impacts' are defined by reference to a specific list of rights and prohibitions many of which arise under existing international human rights treaties. These include issues such as forced labour, child labour, inadequate workplace health and safety, and exploitation of workers.

In-scope companies must integrate due diligence into their policies and risk management systems to enable them to identify adverse impacts. Where adverse impacts are found these must then be addressed and prioritised with a view to preventing or mitigating them. The Directive also imposes monitoring and reporting duties as well as an obligation to have a procedure for complaints about potential adverse impacts. There is a specific requirement for information about the complaints procedure to be provided to relevant worker representatives and trade unions.

European Commission's February 2025 'Sustainability Omnibus'

Against a background of the EU suffering from a perceived lack of competitiveness and businesses highlighting compliance challenges, there has been increasing recognition by Brussels in recent months of the need to ease regulatory burdens on business, cut sustainability-related red tape, and reduce corporate reporting obligations.  To this end, on 26 February 2025, the European Commission announced a new package of proposals to 'simplify EU rules, boost competitiveness, and unlock additional investment capacity'.

Included in the first 'Omnibus' package of reforms is a proposed Directive amending the CSRD and the CSDDD to simplify sustainable finance reporting and sustainability due diligence obligations. The Commission considers that its proposals will generate significant cost savings for companies, reduce regulatory burdens and boost EU competitiveness.

CSRD changes

The Omnibus package proposes several changes to the CSRD to make it more proportionate and easier for companies to implement. The most significant changes are:

• Reduced scope of reporting companies: Currently, the CSRD applies to all large companies which are those above two of three thresholds: EUR50 million net turnover, EUR25 million balance sheet total, and 250 employees.  It also applies to small to medium sized enterprises whose securities are listed on an EU regulated market. The proposed changes would apply the reporting requirements only to large undertakings with more than 1000 employees and either a turnover above EUR50 million or a balance sheet total above EUR25 million. This change would reduce the number of companies in scope by about 80% and more closely aligns with the key scope thresholds of the CSDDD. 
• Postponed reporting requirements: The entry into force of requirements for large companies that have not yet started implementing the CSRD and for listed SMEs is being postponed by two years (to 2028). This aims to give time for the Commission's proposed changes to be implemented. 
• ‘Value chain cap': For companies no longer in the CSRD's scope (those with up to 1,000 employees), the Commission will adopt a voluntary reporting standard. This standard will act as a shield to limit the information that companies / banks falling within the scope of the CSRD can request from companies in their value chains with fewer than 1,000 employees.
• Revised ESRS: The Commission will revise the ESRS to reduce the number of data points, clarify uncertain provisions,  and improve consistency with other legislation.
• Sector-specific standards: The power for the Commission to adopt sector-specific standards will be removed.

CSDDD changes

The most significant changes which the Commission proposes making to the CSDDD are:

• More time to prepare: The deadline for transposition of the CSDDD will be postponed by one year to 26 July 2027, with application of the requirements to the first phase of companies also postponed by a year to 26 July 2028.  To enable businesses to prepare, the Commission will publish guidelines by July 2026.
• Reduced assessment obligations: Requirements to systematically conduct in-depth assessments of adverse impacts will be reduced. Full due diligence beyond direct business partner relationships will only be needed where plausible information suggests adverse impacts.
• Simplified due diligence requirements: The intervals between two regular periodic assessments / updates will be prolonged from one year to five years, although a company must assess its due diligence measures and update them if there are reasonable grounds to believe they are no longer adequate or effective. Stakeholder engagement obligations will be streamlined and the obligation to terminate the business relationship as a last resort measure removed.
• Reduced trickle-down effect: Information that in-scope companies can request from SME and small midcap business partners (ie companies with not more than 500 employees) will be limited to that specified in the CSRD voluntary sustainability reporting standards.

Next steps

The legislative proposals are being submitted to the European Parliament and Council for consideration and adoption. The changes to the CSRD and CSDDD will enter into force once the co-legislators have agreed the proposals and after publication in the EU Official Journal. For now, businesses should assess if they would fall in or out of scope of the directives if the proposed changes proceed. Those that could be out of scope may want to delay compliance activity,  whereas those remaining in scope should continue to develop or adapt compliance strategies,  while monitoring progress of the revised requirements.