Quick Read: Key Insights on the Sustainability Omnibus Package

Currently, the rules apply to large companies meeting at least two of the following three criteria: more than 250 employees, and/or a balance sheet total exceeding €25 million, and/or a net turnover exceeding €50 million. The rules also apply to listed companies (excluding micro-enterprises) and parent companies of large groups. Under the revised scope, the requirements will apply only to companies with more than 1,000 employees and a balance sheet of over €25 million or net turnover exceeding €50 million. This change will reduce the number of companies required to report by 80%. However, it does not relieve companies from the commercial pressures faced by their supply chain partners. Additionally, the threshold for non-EU companies is raised to €450 million turnover within the EU.

Furthermore, the phased implementation for large companies (wave-2: FY 2025) and listed SMEs (wave-3: FY 2026) is postponed by two years to FY 2027 and FY 2028, allowing the EC more time to develop appropriate and proportionate regulations.

The EC aims to limit the "trickle-down" of reporting obligations to smaller companies in the value chain (Value Chain Cap). Large companies can only request information from supply chain partners with fewer than 1,000 employees if the information falls under the new voluntary reporting standard. This standard is based on the VSME framework from EFRAG. Only generally shared sector information can be requested beyond this.

The European Sustainability Reporting Standards (ESRS) are being revised with the goal of reducing the number of required data points and improving alignment with other EU regulations. The objectives include:

• removing less relevant data points for general sustainability reporting; 
• prioritizing quantitative data over qualitative text; and
• distinguishing between mandatory and voluntary data points.

Additionally, it is proposed to discontinue the development of sector-specific ESRS and the transition to reasonable assurance, opting instead to issue targeted guidelines for limited assurance.

Despite much speculation prior to the release of the first Omnibus package, the principle of double materiality remains unchanged.

One of the most significant proposed changes is the substantial easing of due diligence obligations. To reduce the burden on companies, it is proposed to limit due diligence to the company’s own activities, subsidiaries, and direct business partners (Tier-1). Companies will still need to map their supply chains but will only be required to conduct in-depth due diligence assessments for direct business partners. A comprehensive assessment is only mandatory if strong signs of potential negative impacts emerge from indirect business partners.

To mitigate the ‘trickle-down’ effect for smaller businesses, large companies will only be allowed to request information from SME partners that is included in the new voluntary reporting standards (VSRS). For direct business partners with fewer than 500 employees, additional information can only be requested if strictly necessary, for example, in cases of severe risks that cannot be identified through other sources.

Furthermore, the harmonization of the CSDDD is being tightened. Member states will no longer be allowed to introduce national laws that deviate from the obligations regarding human rights and environmental due diligence. The limitation now also applies to due diligence at the group level, ending negative impacts, and grievance procedures. 'Gold plating' on these topics will no longer be allowed.

Due diligence assessments will now need to occur every five years (instead of annually), unless significant changes or new risks arise. The obligation to evaluate and update the due diligence policy based on these results will also be removed. Instead, this obligation will only apply when there are reasonable grounds to believe that the policy is no longer adequate or effective. Companies will also be required to conduct ad-hoc assessments when measures are found to be insufficient or ineffective.

The definition of stakeholders is being adjusted, so only those directly affected by business activities (such as employees, business partners, and affected communities) will be considered. Stakeholders like consumers and environmental organizations will no longer be automatically included.

The obligation to “put into effect” a transition plan, which extends beyond mere adoption, has been removed to better align the CSDDD with the CSRD. However, the requirement to include implementing measures in the transition plan remains unchanged as part of the transparency obligation. Additionally, the obligation to set time-bound objectives, update the plan annually, and report on progress toward these goals remains mandatory.

The implementation for the first group of companies will be postponed by one year to July 26, 2028. Deadlines for the other groups remain unchanged. The review clause regarding the need for additional due diligence requirements for financial institutions is also completely removed, maintaining the exclusion of downstream due diligence obligations for financial institutions.

The proposal would remove the harmonized approach to the civil liability regime under the CSDDD. As a result, civil liability, including priority over third-country laws, will remain subject to the civil systems of member states. Regarding the sanction’s regime, the provision for maximum fines of at least 5% of net global turnover will be removed from the enforcement regime. Instead, the EC and member states will issue guidelines for imposing fines.

The Taxonomy Regulation itself remains unchanged (Level 1), but changes will be made to the delegated regulations (Level 2), specifically the Disclosure Delegated Act ("DDA") and the Climate and Environmental Delegated Act ("CDA" & "EDA").

Mandatory taxonomy reporting will apply only to companies that meet the CSDDD criteria (over 1,000 employees and a turnover exceeding €450 million). For companies with more than 1,000 employees but turnover below €450 million, voluntary reporting on taxonomy alignment will be allowed (opt-in). This also means that the requirement for companies under CSRD to include taxonomy reporting will be completely removed.

Furthermore, taxonomy alignment must only be assessed for activities that are financially material to the core activities of an organization. A materiality threshold will be introduced, so companies with less than 10% eligible activities will not be required to disclose alignment. Reporting on activities that partially comply with the Taxonomy Regulation will also be allowed to encourage transition financing. Additionally, a separate treshold of 25% of cumulative turnover for non-financial companies, considering the relatively lower informational value of data on the alignment of operational expenditures (OpEx), in order to treat such expenditures as immaterial.

For financial companies, the KPIs will be adjusted: exposures to non-CSRD obligated companies will be excluded from the denominator of relevant KPIs (previously only excluded from the numerator). The introduction of the Trading Book KPI and the Fees and Commissions KPI for some financial institutions will be delayed until 2027.

The general reporting templates (Annexes of the DDA) will be significantly shortened and simplified. It is proposed to introduce one template instead of three, with KPIs presented per activity as per current rules. The specific templates for exposures to fossil gas and nuclear activities will be heavily reduced, focusing on elements that do not overlap with the general reporting templates. The reporting templates for taxonomy alignment will be simplified by removing detailed reporting requirements, such as:

• Reporting the parts of activities that align with different objectives separately.
• Reporting DNSH, minimum safeguards, and contributions to multiple objectives separately.
• Explicitly reporting non-aligned activities and fossil gas/nuclear activities.

Summarized information on non-eligible activities, eligible but non-aligned activities, transition and facilitating activities, as well as the separate reporting of data points for DNSH and minimum safeguards for taxonomy-aligned activities, will be abolished.

Additionally, an option will be introduced for CSRD-reporting companies to report partial taxonomy alignment. This allows companies to report activities that meet only certain requirements of the Taxonomy Regulation. This flexibility supports a gradual, sustainable transition of activities over time.

The EC is also seeking feedback on two alternative options to simplify the complex "Do no Significant Harm" (DNSH) criteria regarding pollution prevention and management related to the use and presence of chemicals.

As the next step, the EC will conduct a thorough review of all technical screening criteria of the CDA and EDA, focusing on the DNSH criteria, to find ways to simplify them, make them more usable, and better align them with EU legislation. This consultation has already started, and responses can be submitted until March 26, 2025.