We reported in previous blog posts (here and here) on the European Commission’s Green Deal initiatives and their impact on companies doing business in Europe as well as the significant recent headwind against these instruments.

On Wednesday, 26 February 2025, the European Commission (the “Commission”) published the first set of proposals – the omnibus package, which includes considerable simplification in the areas of sustainable finance disclosure, sustainability due diligence, the European Union (EU) taxonomy, the border carbon adjustment mechanism and European investment programs.

The Commission aims to reduce complexity of EU requirements for all businesses, in particular SMEs and small mid-caps (SMCs, i.e. companies with not more than 500 employees) while focusing on larger companies with potential bigger impact on climate. This article focuses on the changes affecting the Directive (EU) 2022/2464 on corporate sustainability (“CSRD”) and the Directive (EU) 2024/1760 on corporate sustainability due diligence (“CS3D”).

The relevant draft directives can be found here and here.

Background to the original CSRD and CS3D

The CSRD, which entered into force on 5 January 2023, with a deadline for implementation into national laws on 6 July 2024, is a legislative measure introduced by the EU to improve the quality, consistency and comparability of sustainability information provided by companies. The CSRD requires some companies, based on their size, to report sustainability information. For details, please see our previous article here.

The CS3D, which entered into force on 25 July 2024 with a deadline for implementation on 26 July 2026, aims to foster sustainable and responsible corporate behaviour in companies’ operations and across their global value chains. As we reported, the French authorities published a memorandum on 20 January 2025 urging the EU to modify the CSRD and the CS3D, which they consider not to be aligned with the competitiveness challenges EU companies are facing. For details, please see our previous article here.

With its omnibus package, the European Commission is now proposing to address some of the criticisms raised against the existing directives.

The proposed changes to the CSRD

The current CSRD requires EU large undertakings, as well as EU and non-EU listed companies (excluding micro-undertakings) to report sustainability information. Moreover, in some cases, non-EU undertakings are targeted and their EU subsidiary or branch have to make available the sustainability report.

The initial timeframe for applying the CSRD differs depending on the type of undertaking: financial year (“FY”) 2024 for large undertakings which are public interest entities with more than 500 employees; FY 2025 for other large undertakings; FY 2026 for listed SMEs; and FY 2028 for non-EU undertakings with net EU turnover above EUR 150 million (through their subsidiary or branch).

The Commission now proposes to increase the threshold and require EU large undertakings with more than 1,000 employees to comply with the reporting obligations starting with FY 2027, and non-EU undertakings with net turnover above EUR 450 million starting with FY 2028.

It is also proposed to simplify and streamline the European Sustainability Reporting Standards (“ESRS”) through a Delegated Act by reducing mandatory datapoints, prioritizing quantitative data, distinguishing between mandatory and voluntary datapoints, ensuring global compatibility, and improving clarity and consistency with EU laws. Under the proposal, the Commission will no longer be able to adopt sector-specific standards and to propose the option to convert a limited assurance requirement to a reasonable assurance requirement.

The new proposed reporting obligations and timelines can be summarized as follows:

While exempt, companies can opt for voluntary reporting based on the voluntary standards for SMEs (“VSME Standard”) developed by European Financial Reporting Advisory Group (“EFRAG”). This standard is proportionate to their size and capacity, focusing on providing essential sustainability information without the complexities required of larger companies.

The proposed changes to the CS3D

The current CS3D applies to EU limited liability companies and partnerships with more than 1,000 employees and a net worldwide turnover of more than EUR 450 million, as well as ultimate parent companies of a corporate group that meet these thresholds on a consolidated basis, and franchisors/licensors meeting certain conditions and thresholds. The CS3D also applies to non-EU undertakings of a legal form comparable to LLCs/partnerships with a net turnover of more than EUR 450 million generated in the EU, as well as ultimate parent companies of a corporate group that meets the threshold on a consolidated basis, and franchisors/licensors meeting certain conditions and thresholds.

The current timeframe for applying the CS3D differs depending on the type of undertaking: July 2027 for EU companies with more than 5,000 employees and EUR 1,500 million worldwide turnover, as well as non-EU companies with more than EUR 1,500 million turnover generated in the EU; July 2028 for EU companies with more than 3,000 employees and EUR 900 million worldwide turnover, as well as non-EU companies with more than EUR 900 million turnover generated in the EU; and July 2029 for all other companies in scope.

The Commission proposes to extend the transposition deadline of the Directive into national law by one year to 26 July 2027 with the first phase of application for the largest companies postponed to 26 July 2028 (instead of July 2027). The omnibus package proposes new turnover and employee thresholds and changes to the dates when reporting is required under the CR3D. The below table summarises the existing and proposed new rules:

The Commission announced it would issue guidelines by July 2026, to help companies adapt and rely more on best practices rather than extensive legal and advisory services.

Substantive changes to the CS3D include the following elements:

• due diligence efforts are primarily directed at direct business partners, rather than the entire supply chain
• companies are required to conduct in-depth assessments only when there is plausible information suggesting potential or actual adverse impacts at the level of indirect partners;
• the obligations concerning indirect business partners are limited to cases of circumvention or when there is credible information about likely or actual adverse impacts
• the frequency of mandatory monitoring exercises is reduced, alleviating the administrative burden on companies
• regular monitoring is required every five years, with additional assessments triggered by significant changes or new risks
• companies are required to engage only with relevant stakeholders, focusing on those directly affected by their operations
• the trickle-down effect is reduced by the limitation of information that in-scope undertakings can request from their SME and SMCs business partners to the information specified in the VSME Standard, unless in-scope undertakings require additional information to complete the mapping (e.g. on impacts not covered by the standards) and they cannot obtain this information in any other reasonable way.

Outlook and next steps

For the Omnibus Package to become law, it requires approval from both the European Parliament and a majority of EU member states in the European Council. Once law, directives would then have to be transposed into national laws. Until then, existing national laws remain in effect.

It is too early to predict a clear outcome, as significant criticism has been raised against the Omnibus Package from different parts of the EU suggesting that easing sustainability reporting rules could undermine long-term green growth and corporate accountability and impact on human rights and environmental protections.

However, given that key EU member states are in favour of the Omnibus Package and the drive to increase competitiveness, the weight of the Draghi Report and the fact the EC has asked for the legislative process to be fast-tracked, we would expect that a lot of the proposed changes will become EU law likely in months, not years.

Some EU countries may well decide to further goldplate their national laws to address some of the raised criticisms, which would risk a divergence of approach to reporting standards on a national level. This would be an unfortunate outcome and make the monitoring of reporting obligations burdensome.