The European Commission is today announcing its first "omnibus" package, which includes a series of proposals to reduce sustainability reporting obligations for companies. These measures include: a plan to exempt 80 % companies from the scope of the Corporate Sustainability Reporting Directive (CSRD) and limit the sustainability information requirements that large businesses and banks can ask of smaller firms.

In addition to the CSRD amendments, the proposals also bring significant simplifications and restrictions to key European sustainability regulations, including the Corporate Sustainability Due Diligence Directive (CSDDD), the Taxonomy Regulation and the Carbon Border Adjustment Mechanism (CBAM). Many of the proposed measures target small and medium-sized enterprises (SMEs), in line with the Commission's recent "Competitiveness Compass" to boost Europe's productivity and global competitiveness. This compass includes targets to reduce reporting burdens by at least 25 % for all companies and 35 % for SMEs.

The Commission expects that the new omnibus proposals will allow businesses to save around €6.4 billion per year in administrative costs, of which €4.4 billion will be due to changes to the CSRD.

The CSRD, which is based on the new European Sustainability Reporting Standards (ESRS), introduces detailed requirements for companies to disclose their environmental, human rights, social and sustainability-related impacts. The directive will enter into force from the beginning of 2024 for large public interest entities with more than 500 employees, with the first reports expected in 2025. The following year, companies with more than 250 employees or revenues above €50 million will report, and a year later, listed SMEs.

However, the new proposal will narrow the scope of the CSRD to companies with more than 1,000 employees and either a net turnover of more than €50 million or a balance sheet of more than €25 million. This will exempt an estimated 80 % companies from sustainability reporting requirements.

For smaller companies, the EU plans to introduce voluntary sustainability reporting requirements based on the Voluntary Standards for SMEs (VSMEs) recently published by EFRAG. The VSME standards will also serve as a limit on the level of detail in sustainability information that banks or larger companies can request from smaller companies in their value chains.

In addition to excluding most companies from the CSRD, the Commission also plans to revise the ESRS to significantly reduce the number of data points required by the sustainability reporting standards. The planned sector-specific standards will not be introduced and appropriate assurance will not be required under the CSRD.

The CSDDD requires companies to identify, assess, prevent, mitigate, address and eliminate impacts on people and the planet – from child labour and slavery to pollution and emissions to deforestation and ecosystem degradation – in their supply chain and certain downstream activities such as distribution and recycling. The legislation was passed in May 2024, but after a long process, it required revisions that significantly reduced the number of companies covered by the law and extended the timeline for its full implementation.

In particular, the Commission decided to maintain the dual-materiality reporting approach in the CSRD, which requires disclosure on the risks and impacts of sustainability issues on the business, as well as on the businesses' impacts on the environment and society.

Key changes proposed by the Commission for the CSDDD include postponing the application of the directive by one year for large companies until July 2028, requiring full due diligence only at the level of direct business partners unless the company has reliable information on negative impacts in its value chain, and reducing the frequency of monitoring the effectiveness of due diligence from the set annual period to five years. The new CSDDD proposal also introduces a limit on the information that can be requested from small companies under the VSME and adds further burden-relief measures for companies, such as removing the obligation to terminate the business relationship as a last resort.

The European Taxonomy has introduced a classification system to categorize economic activities that contribute significantly to at least one of the six defined environmental objectives and to other objectives that do not cause significant harm (DNSH). The aim is to mobilise capital flows for sustainable investments and support financing for a sustainable transition. The six objectives include climate change mitigation, climate change adaptation, sustainable use and protection of water and marine resources, the transition to a circular economy, pollution prevention and control, and the protection and restoration of biodiversity and ecosystems.

Under the Commission's new proposal, the taxonomy will only be mandatory for companies with revenues above €450 million, while smaller companies can report voluntarily if they want to access sustainable finance. The proposals also put a stronger focus on financing the transition with a new option to allow companies to report on partial taxonomy compliance. The Commission will also introduce amendments that will reduce the number of data points required in the taxonomy templates by almost 70% and exempt companies from assessing taxonomy eligibility and compliance for their economic activities that are not financially significant for their business.

CBAM is a carbon tax on imported goods with the aim of equalizing the carbon price paid by European producers with products from outside the EU and preventing "carbon leakage", where companies move the production of goods with high emission requirements to countries with less stringent environmental and climate policies.

The most significant change to the CBAM that the Commission has announced is the introduction of a new threshold that excludes 90 % importers from the scope of the regulation. However, despite the exclusion of around 182,000 importers, the Commission has stated that more than 99 % of emissions will still be covered by the CBAM. The new proposals also include simplifications regarding the calculation of emissions and other reporting requirements.

The proposals will be submitted to the EU Council and Parliament and will enter into force once an agreement has been reached between these bodies, with the Commission requesting that they be treated as a priority. Spring