Released on February 26, the EU's Omnibus proposal looks set to make major changes to both the CSRD and the CSDDD. From a legal perspective, some of the changes can be made by the European Commission with minimal input from other EU institutions, whilst other amendments will require a full legislative process, which will introduce further uncertainty.
The European Commission’s Omnibus proposal (as it currently stands) intends to delay compliance with the CSDDD by one year, to July 2028. The scope of the directive will be limited to conducting risk-based assessments on the human rights and environmental performance of Tier 1 suppliers. The effectiveness of due diligence measures will only need to be assessed every five years, instead of annually. The Omnibus proposal also includes a dilution of the financial penalties resulting from non-compliance.
How about proposed changes to the CSRD? The biggest change is to the reporting threshold. Originally, there was an expectation that more than 50,000 firms would need to comply with the CSRD. Under the revised directive, only businesses with €450 million of net turnover and more than 1,000 employees will be covered. These higher thresholds will apply to both EU-based firms and non-EU-based firms operating in the EU market. This will likely reduce the population of businesses covered to between 5,000 and 6,000.
EU Taxonomy reporting, which has been a complex challenge, looks set to become voluntary if the proposal gets political support. At this stage, double materiality reporting covering both impact and financial materiality is not under threat. CSRD reporters will also not be required to gather detailed information from small and mid-sized businesses (SMBs) in their value chain. There has been heavy lobbying to reduce the number of ESRS data points. This is unsurprising given that in their 2024 CSRD reports, some filers cover more than 100 impacts, risks and opportunities (IROs) and drafted 400 pages of commentary. This technical topic will almost certainly be delegated back to the notorious EFRAG experts. Sector-specific standards, which were scheduled to be adopted by mid-2026, now look dead. Limited assurance appears set to continue, but reasonable assurance, originally pencilled in for 2029, is now very unlikely. Expect time spent on CSRD projects by firms covered by the new threshold to shrink by 50%.
Although uncertainty around this new proposal may worry some sustainability leaders, others will be optimistic about simplified regulations - which will potentially free up time and resources for innovation, rather than compliance.
