Omnibus package for sustainability reporting

In this Legal Alert we analyse the background to the initiative, the main changes planned and their potential impact on businesses.

The European Commission has been reflecting on how to strengthen the European Union’s competitiveness in the global context.[1] As part of this strategy, it plans to develop a series of regulatory simplification measures, known as omnibus simplification packages. The first package is expected to be announced on 26 February 2025 and aims to simplify companies’ sustainability reporting obligations. It will do so by introducing changes to the Taxonomy Regulation, the Corporate Sustainability Reporting Directive (“CSRD”) and the Corporate Sustainability Due Diligence Directive (“CS3D”).

In this Legal Alert we analyse the background to the initiative, the main changes planned and their potential impact on businesses.

A ‘compass’ for European competitiveness

The idea of an omnibus package was first mentioned by Ursula von der Leyen on 8 November 2008, when the Heads of State and Government of the EU Member States and the President of the Commission met in Budapest to discuss the competitiveness of the European Union. This concept was later developed in the European Competitiveness Compass, a strategic tool published on 29 January 2025 to strengthen the European Union’s position in the global economy.[1]

The European Competitiveness Compass builds on the conclusions of Mario Draghi’s report on European competitiveness[2] and Enrico Letta’s[3] report on the future of the single market. It rests on three strategic pillars:

i. Innovation and productivity: reducing the gap between the EU and other major economies in terms of productivity and technological progress.

ii. Sustainability and growth: reconciling decarbonisation and competitiveness without compromising economic growth.

iii. Reducing external dependencies: strengthening the EU’s economic resilience and security.

In addition to these three pillars, the document highlights key cross-cutting issues such as simplifying regulation, removing barriers in the internal market, financing competitiveness, developing skills and creating quality jobs, and strengthening coordination between Member States. In this context, the omnibus package aimed at reducing administrative burdens for businesses is being put forward.

The omnibus package

The first omnibus package, announced on 26 February, aims to reduce reporting requirements by 25% for most companies and by 35% for SMEs.[4] Some of the key measures include:

i. The introduction of a new definition of small mid-caps with the aim of reducing the regulatory burden on them, possibly bringing them closer to the simplified rules already applied to SMEs.

ii. Tailoring sustainability obligations to the size and scope of activities of the companies covered, while ensuring an appropriate regulatory balance. Regulations and directives such as the Taxonomy Regulation, CSRD, CS3D and possibly the Sustainable Finance Disclosure Regulation (“SFDR”) are potentially covered.

iii. Mitigating the regulatory ‘cascade effect’, i.e. the excessive transfer of sustainability reporting burdens from large companies to other actors in their value chains, while avoiding overburdening smaller companies.

iv. Promoting a structured dialogue with companies, including SMEs, to assess the concrete impact of simplification measures on their activities and to ensure their effectiveness. This initiative is in response to calls from the European business community, which has sent clear signals that excessive regulatory complexity, lengthy authorisation procedures and overly bureaucratic administrative procedures are significant obstacles to their competitiveness.

The publication of this omnibus package on 26 February should trigger the necessary legislative process to finalise and bring into force the relevant legislation. In addition to the European Commission, this process involves the European Council and the European Parliament, and its duration will depend on several factors, including the complexity of the proposed changes and the unanimity of political will.

The simplification debate and the risk of “deregulation”

The need to simplify the regulatory framework for sustainability is not a new issue. It has been addressed by the EU Sustainable Finance Platform, which published a report on simplifying the Taxonomy on 5 February. The report proposes five main measures to make reporting more efficient:[5]

i. It is proposed to improve the assessment and reporting requirements of the ‘do no significant harm’ (DNSH) principle, differentiating its application by user (financial and non-financial entities), purpose (turnover or investment) and geography (exposure inside and outside the EU).

ii. Introduction of the materiality principle for all entities and materiality thresholds for non-financial key performance indicators (KPIs), including a simplified DNSH assessment for the turnover KPI. In addition, the calculation of operating expense KPIs (OpEx KPIs) will be clarified and their obligation limited to research and development (R&D).

iii. Establishing clear guidelines for the use of estimates within the taxonomy, including the creation of safe harbours for reporting in the financial sector.

iv. The introduction of estimates and proxies for all relevant assets for the calculation of the Green Asset Ratio (GAR) and the Green Investment Ratio (GIR), together with a simplified assessment for retail investors and a reduced denominator for certain asset classes.

v. The development of simplified and voluntary approaches for integrating the taxonomy into the reporting of SMEs, banks and investors.

In parallel with the announcement of the omnibus package, the Commentary and recommendations for simplification of EU sustainable finance legislation was published on 1 February. In this document, the International Capital Markets Association (ICMA) made several recommendations, including:[6]

i. Addressing the applicability challenges of the EU Taxonomy, limiting mandatory reporting to large, listed companies and, for the time being, only to climate change mitigation and adaptation targets, with best effort reporting for the remaining four targets. In addition, it was proposed to introduce alternative methodologies for the assessment of DNSH and Minimum Safeguards (MS) based on an entity-level risk approach and to create mechanisms for the recognition of equivalent external taxonomies.

ii. Redefining mandatory reporting requirements under the CSRD, focusing on material information without compromising the dual materiality perspective and ensuring consistency with the International Sustainability Standards Board (ISSB) standards.

iii. Harmonising reporting under the SFDR, aligning it with the simplified data of the CSRD, the requirements of the ISSB and other recognised market taxonomies, avoiding implementation delays between the CSRD and the SFDR.

iv. Maintaining a flexible definition of ‘sustainable investment’ in the SFDR, allowing for a broader approach to sustainability than that provided for exclusively in the EU Taxonomy.

v. Adjusting the deadlines of pending legislation to ensure a gradual and coherent implementation and to provide greater predictability and legal certainty, in particular by temporarily suspending certain reporting requirements.

However, this simplification strategy has been perceived by other organisations and civil society[7] representatives as a sign of ‘deregulation’, giving in to the interests of certain business groups, which could mean a step backwards for the European Union in terms of sustainability.

An inadequate approach to simplifying the current reporting requirements could weaken the collection and analysis of essential data to monitor progress on sustainability. The lack of detailed information would not only potentially make it difficult to assess the impact of the policies adopted, but could also jeopardise the objectives of the European Green Deal[8], thus weakening the European Union’s ability to ensure a sustainable and competitive transition.

In this context, the Joint Research Centre (JRC) published on 30 January the most comprehensive study to date on the progress made towards achieving the broad objectives of the Green Deal.[9] The study identifies 154 targets, both binding and non-binding, which make up the Green Deal, and presents a picture of the progress made towards their achievement. Of the 154 targets analysed, 32 are currently ‘on track’, while 64 have been identified as ‘in need of acceleration’, i.e. they are progressing but require increased efforts to be met by the deadlines set. In addition, 15 targets have been identified as ‘not progressing’ or even ‘regressing’, and for 43 no data is yet available.

Next steps

The debate on simplifying sustainability legislation will continue to be a key issue in the coming years as the European Union seeks to balance competitiveness and regulatory effectiveness. Developments in this area will continue to be closely monitored, as the implementation of new measures will require constant adaptation. However, given the recent transposition (or lack of transposition in the case of Portugal) of the CSRD and the recent entry into force of the CS3D, there is a risk that simplification will pose challenges to the full implementation of obligations, thereby jeopardising the coherence and impact of sustainability policy.