The EU’s “Omnibus I” and “Omnibus II” Simplification Packages Announced

Introduction:

During the last couple of months, the latest buzzword in the ESG scene has undoubtedly been the “Omnibus Package”. After being initially mentioned by EU Commission President Ursula von der Leyen in an EU Heads of State and Government meeting with the European Commission in Budapest on 8^th November 2024, as well as being teased once more earlier this month on the 12^th February through the EU Commission’s Work Programme for 2025 publication[1], yesterday marked an important step in the ESG world, which, after a month of growing hype, speculation and protests, saw the EU Commission officially announcing two major legislative packages: “Omnibus I[2]” and “Omnibus II[3], the aim of which is to reduce regulatory burdens, enhance sustainability rules and promote further sustainable investment.

What is it?:

Due to a surge in ESG legislation, various businesses and in-scope companies, especially small and medium-sized enterprises (SMEs), have expressed their growing concerns on the regulatory burden that is being placed upon them, noting that the current ESG regulations, principally the sustainability reporting obligations, are overly costly, complex and disproportionate when compared with their size and activity.

The Omnibus Package is the EU’s attempt to simplify and streamline the existing corporate sustainability rules, reducing the current regulatory complexities and compliance burdens that in-scope companies are currently facing, while also addressing concerns over Europe’s economic competitiveness[4].

As outlined earlier this month, the streamlining process will be implemented through three planned omnibus packages, with the first two packages being announced yesterday and the third proposal due in Q2 2025.

What has been announced?

The EU Commission has unveiled the hereunder legislative developments[5]:

• A proposal for a Directive amending the Corporate Sustainability Reporting Directive (CSRD)[6], and the Corporate Sustainability Due Diligence Directive (CSDDD)[7].

• A proposal which postpones the application of all reporting requirements in the CSRD for companies that are due to report in 2026 and 2027 (so-called wave 2 and 3 companies) and which postpones the transposition deadline and the first wave of application of the CSDDD by one year to 2028.

• A draft Delegated act amending the Taxonomy Disclosures and the Taxonomy Climate and Environmental Delegated Acts subject to public consultation.

• A proposal for a Regulation amending the Carbon Border Adjustment Mechanism Regulation (CBAM)[8].

• A proposal for a Regulation amending the InvestEu Regulation.

The First Omnibus Package – What has changed?

The First Omnibus package covers the CSRD, the CSDDD and the EU Taxonomy for sustainable activities and seeks to simplify sustainable finance reporting, sustainability due diligence and taxonomy.

Proposed changes to the CSRD:

• The removal of around 80% of companies from the scope of the CSRD, focusing the sustainability reporting obligations on the largest companies which are more likely to have a greater impact on the society and the environment. The reporting requirements would now only apply to large undertakings with more than 1000 employees and would align the scope of the CSRD more closely with that of the CSDDD, bringing consistency between the two pieces of legislation.
• The prevention of sustainability reporting requirements on large companies from burdening smaller companies in their value chains. The current CSRD was aiming to achieve this by way of a “value-chain cap” which states that the ESRS may not contain reporting requirements that would require undertakings to require more value chain information from SMEs than what is required to be disclosed in accordance with the listed SMEs (LSME) standard. However, EFRAG has now submitted a voluntary SME standard (VSME), for voluntary use by SMEs that are not within the scope of the CSRD. Therefore, under the new proposals, the VSME standard will replace the LSME standard, and will also protect undertakings with fewer than 1000 employees from excessive sustainability information requests.
• Postponing the reporting requirements until 2028 for in-scope companies that were required to report as of 2026 or 2027 granting them additional time.
• Revision of the delegated act establishing the European Sustainability Reporting Standards (ESRS), with the aim of reducing the number of data points, improving harmonisation with other legislation and provide more guidance on the application of the materiality principle.
• The removal of sector-specific standards. Whilst the CSRD originally mandated sector-specific reporting standards to enhance comparability and provide guidance on sustainability matters within specific sectors, due to concerns about additional reporting and disclosure obligations, the Commission proposed to eliminate this mandate, allowing businesses to focus on implementing the sector-agnostic ESRS and referring to existing sector-based international standards for additional guidance.

Proposed changes to the CSDDD:

• The simplification of due diligence requirements by focusing systematic requirements on direct business partners, ensuring that in-scope companies avoid unnecessary complexities and costs.
• The reduction of the frequency of periodic assessments from annual to five years, aiming to reduce annual costs by up to 80%.
• The reduction of burdens and trickle-down effects for SMEs and SMCs (small midcap companies with not more than 500 employees) by limiting the amount of information that may be requested as part of the value chain mapping by large companies.

• The further harmonisation of due diligence requirements, such as the removal of the termination obligation and the simplification of the definition of a “stakeholder”, ensuring a level playing field across the EU.
• The removal of EU civil liability conditions while preserving victims' right to be awarded full compensation for damage caused by non-compliance, and protecting companies against over-compensation, under the civil liability regimes of Member States.
• The granting of more time to companies to prepare to comply with the new requirements by postponing the application of sustainability due diligence requirements for largest companies by one year (to 26^th July 2028) while advancing the adoption of guidelines by one year to July 2026.

Proposed changes to the EU Taxonomy:

• The reduction of the EU Taxonomy reporting obligations and limiting it to the largest companies (corresponding to the scope of the CSDDD), while keeping the possibility to report voluntarily for the other large companies within the future scope of the CSRD. With the new proposals, large undertakings and parent undertakings of large groups with net turnover under €450 million can opt-out of Taxonomy reporting.
• The introduction of an option to report on activities partially aligned with the EU Taxonomy, fostering a gradual environmental transition of activities over time, in line with the aim to scale up transition finance to help companies on their path towards sustainability.
• The introduction of a financial materiality threshold for reporting and reduction of reporting templates by around 70%.
• The simplification of complex “Do no significant harm” DNSH criteria for pollution prevention and control related to the use and presence of chemicals that apply horizontally to all economic sectors under the EU Taxonomy.
• The adjustment of the main Taxonomy-based key performance indicator for banks, the Green Asset Ratio, allowing them to exclude exposures outside of the future scope of the CSRD (i.e. companies with less than 1000 employees and €50m turnover).

Proposed changes to the CBAM:

• The exemption of small importers from CBAM obligations through a new cumulative annual threshold of 50 tonnes per importer, eliminating obligations for 90% of importers, mostly SMEs, while still covering over 99% emissions in scope.
• The simplification of rules for companies that remain in scope on authorisation of CBAM declarants and rules related to obligations including the calculation of embedded emissions and reporting requirements.
• The strengthening of rules to avoid abuse making CBAM more effective in the long term.

The Second Omnibus Package – What has changed?

The Second Omnibus package addresses investment simplification. Yesterday, the EU Commission also put forward a series of amendments streamlining and optimising the use of several investment programs including the InvestEU, the European Fund for Strategic investments (EFSI), and legacy financial instruments.

The Commission intends to increase the EU's investment capacity, thus allowing for more funding to be made available to businesses. This proposal is expected to unlock around €50 billion in additional public and private investments. The increased InvestEU capacity will be mainly used to finance more innovative activities in support of priority policies, such as the Competitiveness Compass and the Clean Industrial Deal.

Furthermore, the Commission intends to facilitate the contribution to the programme by Member States and support their own businesses, unlocking more private investment.

Lastly, the simplification of certain administrative and compliance requirements for implementing partners, financial intermediaries and final recipients, notably SMEs, are expected to generate €350 million in cost savings, which means more financing for cleaner technology, digitalisation and infrastructure.

Way forward:

The proposed amendments announced by the Omnibus I and Omnibus II legislative packages have been met with mixed reactions. Whilst some members of Parliament and green groups are arguing that the proposals result in a massive deregulation, marking a significant step backwards and weakening certain foundations of the Green Deal and the EU’s sustainability agenda, others advocate to the contrary. Although the proposals and new requirements do create a level of ambiguity and short-term uncertainty for businesses, particularly to those business that have already undertaken a significant amount of work to comply with the previous requirements put forward by the regulations, the EU Commission explained that the simplification agenda is not deregulation, with the Green Deal goals and targets remaining intact. Rather, the proposals aim to deliver the targets of the European Green Deal in a more efficient and less costly manner[9].

In practice, even though under the new scoping thresholds, a company might now fall out of scope of the regulatory requirements and may have to restructure, their efforts and compliance activities should not be abandoned. This is especially evident when considering the perception and expectation of stakeholders such as investors and customers, as well as reputational and potential litigious risks by activist NGOs, as well as a drive to mitigate sustainability risks to prevent any financial losses.

The legislative proposals will now be submitted to the European Parliament and the Council for their consideration and adoption. The changes to the CSRD, CSDDD, and CBAM will enter into force once the co-legislators have reached agreement on the proposals and after publication in the EU Official Journal.

The draft Delegated Act amending the current delegated acts under the Taxonomy Regulation will be adopted after public feedback and will apply at the end of the scrutiny period by the European Parliament and the Council.

Author: Dr. Brandon Meli

The Omnibus Packages are a significant development which Dingli & Dingli Law Firm is closely monitoring. If you are an in-scope company looking out to understand how the Omnibus Packages will be affecting you or require advisory in respect of ESG reporting, feel free to reach out to Dr. Meli on brandon@dingli.com.mt

[1] https://ec.europa.eu/commission/presscorner/detail/en/ip_25_466

[2] https://commission.europa.eu/document/download/0affa9a8-2ac5-46a9-98f8-19205bf61eb5_en?filename=COM_2025_80_EN.pdf

[3] https://commission.europa.eu/document/download/58f5e2e3-e2c9-4149-9fd6-648490c9e7fe_en?filename=COM_2025_84_EN.pdf

[4] https://www.erm.com/insights/the-eu-omnibus-regulation-preparing-for-changes-to-european-sustainability-disclosure-regulations/

[5] https://ec.europa.eu/commission/presscorner/detail/da/qanda_25_615

[6] Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022 amending Regulation (EU) No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU, as regards corporate sustainability reporting

[7] Directive (EU) 2024/1760 of the European Parliament and of the Council of 13 June 2024 on corporate sustainability due diligence and amending Directive (EU) 2019/1937 and Regulation (EU) 2023/2859 (Text with EEA relevance)

[8] https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism_en

[9] https://www.politico.eu/article/most-eu-firms-exempted-from-green-reporting-under-proposed-omnibus-bill/