News Flash: The European Commission’s "Omnibus Simplification Package" to Enhance Competitiveness

What You Need to Know

On 26 February 2025, the European Commission published a proposal to streamline sustainability regulations, aiming to ease compliance burdens while maintaining climate and policy objectives. The initiative responds to concerns raised in The Future of European Competitiveness, a report by Mario Draghi, which highlights the need for a regulatory framework that fosters resilience and economic growth. It also reflects the commitments made by EU leaders in the Budapest Declaration on the New European Competitiveness Deal, where they called for a "simplification revolution" to create a clearer, more efficient regulatory environment—particularly for SMEs. As part of this effort, they urged the Commission to reduce reporting requirements by at least 25% in the first half of 2025.

The proposal introduces targeted amendments to the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CS3D), the Carbon Border Adjustment Mechanism (CBAM), and the InvestEU Regulation. A draft Taxonomy Delegated Act has also been released for public consultation. These measures seek to strike a balance between the EU’s sustainability ambitions and the need to enhance the competitiveness of European businesses.

By simplifying reporting obligations, the initiative aims to reduce administrative burdens without compromising the objectives of the European Green Deal.

Key Changes CS3D & CSRD:

1. CS3D

Postponement of Due Diligence Obligations: The transposition deadline has been postponed to July 26, 2027, with the largest companies required to comply by July 26, 2028—a one-year delay from the initial timeline. The Commission will provide general guidelines, including practical guidance and best practices, by July 2026.
Limitation of Due Diligence Scope: Companies will no longer be required to conduct in-depth assessments of adverse impacts at the level of indirect business partners. Full due diligence beyond direct business partners will only be necessary if a company has plausible information suggesting that adverse impacts have arisen or are likely to arise.
Extension of Due Diligence Review Intervals: To reduce compliance costsand complexity, the regular review period for assessing and updating due diligence measures will be extended from one year to five years. However, companies must conduct an ad hoc assessment if there are reasonable grounds to believe that existing measures are no longer effective.
Elimination of Mandatory Termination of Business Relationships: Companies will no longer be obligated to terminate business relationships as a last-resort measure in cases of adverse impacts.
Information Requests from SMEs and Small Midcaps: Companies within the CSRD scope will face restrictions on the amount of information they can request from SME and small midcap partners (companies with fewer than 500 employees). Requests must align with the Voluntary SME (VSME) standard, except when additional information is essential for risk assessment and cannot be obtained elsewhere.
No Harmonized Civil Liability Conditions: The harmonized EU civil liability regime will be removed, meaning liability determinations will now be governed by national laws in each EU Member State, while victims of non-compliance retain the right to full compensation. The minimum cap for fines will be eliminated, and trade unions and NGOs will no longer have a mandatory right to file representative actions, leaving this to national legal frameworks. Additionally, EU Member States will no longer be required to override third-country liability rules in cross-border cases.
Increased Harmonization of Due Diligence Obligations Across the EU: The proposal introduces maximum harmonization of core due diligence provisions, ensuring consistent implementation across Member States. This includes the identification of adverse impacts, the obligation to address identified impacts, and the establishment of complaints and notification mechanisms.
Further Amendments: The proposal removes the review clause on the potential inclusion of financial services within the directive’s scope. Additionally, it aligns the requirements for adopting transition plans for climate mitigation with the Corporate Sustainability Reporting Directive (CSRD).

2. CSRD

Postponement of Reporting Obligations: The sustainability reporting requirements for companies within the CSRD scope will be postponed by two years for those initially required to comply from the financial year 2025 or 2026, depending on their size. This includes large undertakings, listed SMEs, small and non-complex institutions, EU captive (re)insurance undertakings, and issuers classified as large undertakings. The proposal does not affect the initial reporting obligations of large EU companies already required to report for financial years starting on or after January 1, 2024.
Reduction of Scope: The reporting requirements will now apply only to large undertakings with more than 1,000 employees and either a turnover above EUR 50 million or a balance sheet total above EUR 25 million. According to the European Commission, this adjustment will remove approximately 80% of companies from the CSRD’s scope, aligning it more closely with the thresholds of the CSDDD.
Voluntary Reporting for Smaller Companies: Companies with fewer than 1,000 employees will no longer be required to report but may choose to do so under a simplified voluntary standard developed in line with EFRAG's SME standards (VSME).
Limitation on Value Chain Reporting: Companies subject to the CSRD will be restricted from requesting sustainability information from value chain partners with fewer than 1,000 employees beyond what is specified in the VSME reporting standards, except for sector-specific common data.
Elimination of Sector-Specific Standards: The Commission will no longer be empowered to adopt sector-specific reporting requirements.
Revised Assurance Requirements: The Commission’s authority to mandate a transition from limited assurance to reasonable assurance has been removed, maintaining a more flexible assurance framework.

3. EU-Taxonomy-Regulation

Adjustments to EU Taxonomy Reporting: Reporting requirements under the EU Taxonomy will be reduced and limited to the largest companies within the CSRD scope, while other large companies may continue voluntary reporting. A financial materiality threshold will be introduced, reporting templates will be reduced by 70%, and the “Do No Significant Harm” (DNSH) criteria for pollution prevention will be simplified.
Gradual Transition to Sustainable Finance: The amendments introduce the option to report activities that are partially aligned with the EU Taxonomy to encourage a gradual transition towards sustainability. The Green Asset Ratio (GAR) for banks will also be adjusted, allowing them to exclude exposures to companies with fewer than 1,000 employees and a turnover below EUR 50 million.
For companies and corporate groups that are not subject to taxonomy reporting requirements but fall within the scope of the CSRD (i.e., companies with more than 1,000 employees and less than EUR 450 million in revenue), taxonomy reporting shall be voluntary.

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