The European Union is a complex political construct, and other than being an ambitious and important European project of peace and cooperation, its main objective was to establish a common market among the member states. The establishment of an economic union was accompanied by detailed – often technical – guidance in order to implement a single rulebook and ensure a level playing field as much as feasible.
Businesses should benefit from the same or at least very similar rules in place in each of the (today 27) member states. However, over the years the amount and detail of applicable EU rules has increased significantly, so that market participants encounter an administrative burden they often find difficult to handle.
EU sustainability background
Sustainability is a highly complex topical area which means different things to different people. Some consider it to mean responsibly dealing with climate change and natural resources, facilitating the net zero and green transition. Others understand it to focus on worldwide development (see the SDGs), on human rights or more specifically on diversity, equity and inclusion (DEI). These days, sovereign defence is also being discussed under the heading of sustainability. And some consider ‘ESG’ to be the acronym which contains and explains everything insofar.
In any event, relevant matters are constantly evolving, forward-looking, hard to fix and largely subjective – which also applies in the context of political and legislative decision-making.
Against this background, over the past years EU legislators have attempted to establish a sustainability-related rulebook, with a particular view to the net zero and green transition. This started with the so-called ‘Sustainable Finance Action Plan’ in 2018 (which among other things included the Taxonomy Regulation), addressing the financial services industry to redirect finance flows towards sustainable investments and activities. However, this meant taking the second step before the first, as transition needs to take place in the real economy, and financiers require information about their investment objects, borrowers etc.
The EU Commission (being the only EU body which is competent to draft and release technical legislative proposals) has consequently issued additional rules, which serve the purpose of addressing the real economy and their transition needs. Relevant rules comprise corporate sustainability reporting requirements (the CSRD of December 2022, together with Article 8 of the Taxonomy Regulation) and corporate sustainability due diligence requirements (the CSDDD of June 2024 with a general approach, and various specific topical initiatives, such as the Deforestation Regulation). The CSRD and the CSDDD are European directives, which require transposition into national laws, while EU regulations are directly applicable in each member state.
As it has proven for real economy enterprises that properly dealing with sustainability challenges (particularly relating to transition objectives) is not a simple, one-off and cost-efficient exercise, complaints have been raised by corporates (especially SMEs) and their industry bodies, demanding simplification and reduction of red tape.
Considering most recent economic difficulties in some member states and certain changes in priorities on the political agenda, autumn 2024 saw the EU Commission promising to attend to the articulated concerns of the industry as a focus of its new mandate (until 2029). Following the ‘Draghi report on EU competitiveness’ of September 2024, the Commission published its ‘Competitiveness compass for the EU’ in January 2025.
What is Omnibus?
On 26 February 2025, the EU Commission presented certain concrete proposals. The set issued comprises the so-called ‘Clean Industrial Deal’ and ‘Omnibus legislation on sustainability rules’. The Clean Industrial Deal goes for a ‘plan for competitiveness and decarbonisation’, which includes affordable energy, clean tech issues, circularity and raw materials and some other things. The Commission emphasises that this should entail a growth strategy for the sake of climate and competitiveness.
The Green Deal is being upheld and in no way compromised, according to the Commission’s reasonings. This cannot be surprising, as there exist clear legal commitments at EU level, both as regards decarbonisation (net zero 2050 as binding objective, set out in the EU Climate Regulation of June 2021) and natural resources (see EU Nature Restoration Regulation of June 2024).
The current Omnibus legislation consists of an ‘Omnibus I’ and an ‘Omnibus II’. The latter is called ‘Investment Omnibus’ and addresses issues of public funding (InvestEU programme), while the former is called ‘Sustainability Omnibus’.
The Sustainability Omnibus comprises four different legislative initiatives: A proposal for a directive amending the CSRD and the CSDDD, regarding certain application dates; a proposal for a directive amending the CSRD and the CSDDD, regarding certain changes of, and amendments to, details of the respective requirements; a proposal for a delegated regulation amending various delegated acts of the Taxonomy Regulation; and a proposal for a regulation amending the CBAM Regulation (Carbon Border Adjustment Mechanism).
What’s happened so far?
Each of these dossiers now needs to go through the usual EU legislation process, which means that the European Parliament and the member states (via the Council) must thoroughly analyse the proposals, discuss and define their respective positions, and finally an agreement must be achieved with respect to the respective content.
This will involve consulting stakeholders, liaising with industry bodies and lobbyists, listening to NGOs and considering expert views. To date, only one thing appears to be for sure: There exist numerous different, diverging and contradicting positions and expectations, ranging from ‘it was high time for such a step to reduce red tape’ to ‘why should we reward those who fail to rise to the challenge and fall short of delivering their contribution’. In fact, climate change will continue, and natural resources and conditions will further deteriorate, while related legal requirements for enterprises may be maintained or dropped.
Regarding the CSRD, main aspects of the proposed changes include the postponement of the sustainability reporting obligation for two years to 2027 for many enterprises, and the increase of the number of employees to 1,000 (from 250) to determine whether an enterprise is subject to sustainability reporting (turnover €50 million+, balance sheet total €25 million+, employees 1,000+). According to the EU Commission, this means that the number of enterprises in scope would be reduced by 80%.
Other details show that things have been put together under high political and timely pressure – e.g. a specific additional and not very straight forward rule is apparently meant to protect smaller enterprises in the value chain (which are not required to report themselves) against detailed information requests from larger companies required to report. From a contract law perspective, at first sight the question arises why enterprises may not agree on the provision and exchange of information as they wish. It may also prove to be difficult to hold off banks, insurers or investors from requesting from enterprises – be they required to report under the CSRD or not – information they reasonably consider relevant for their lending, insuring or investing activities, and which they may even be required to collect by other regulation.
It may be noted that changes to the ESRS (European Sustainability Reporting Standards of 2023, in the legal form of an EU regulation) have not yet been proposed. The ESRS are mandatory standards to be employed by enterprises when reporting in accordance with the CSRD, and contain very detailed requirements on 300 pages, plus guidance by EFRAG and others, extending from general strategic and governance related aspects (see ESRS 2) to details of environmental, social and business conduct aspects (see ESRS E1-5, S1-4 and G1). In the areas of ESRS S2-4 and G1 in particular, there appears to be some room for enhancement and simplification.
Concerning Taxonomy reporting, the Commission’s proposal, inter alia, foresees that mandatory reporting shall be limited to enterprises with €450 million+ turnover, and that additional thresholds and materiality criteria may be introduced for the purposes of assessing Taxonomy-eligibility and alignment.
Proposed changes to the CSDDD relate to various details of the due diligence requirements, regarding business relationships, stakeholders and other things. The requirement to adopt a transition plan for climate change mitigation is generally maintained, while specific rules on civil liability are to be removed.
An example for a meaningful approach may be what the EU Commission has put forward in connection with the CBAM proposal. It explains that the ambition insofar is to capture at least 99% of carbon emissions, but at the same time about 90% of enterprises covered may be released. If this is true, one may still ask why the Commission has not been able to figure that out earlier.
The EU Commission announced in autumn 2024 that it is committed to achieving at least a 25% reduction in administrative burdens and at least 35% for SMEs – in its current ‘Q&A on simplification omnibus I and II’, it has expressed that this should take effect “before the end of the mandate” (which means 2029).
Thus, it remains to be seen how quickly and into what direction the EU Sustainability Omnibus will move ahead. It may be likely that the dossier which governs the postponement of the application of CSRD and CSDDD rules is being pushed forward politically as a first step, to achieve some legal certainty at least in this respect, and the other proposals are being dealt with in more detail subsequently.
