EU: Commission publishes Sustainability Omnibus

• a proposal for a Directive amending the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CS3D) (Amendment Directive)
• a proposal for a Directive postponing the application of certain requirements in the CSRD and CS3D (Stop the Clock Directive)
• a draft delegated act amending the Taxonomy Disclosures and the Taxonomy Climate and Environmental Delegated Acts (Taxonomy Regulations Amendment)
• a proposal for a Regulation amending the Carbon Border Adjustment Mechanism Regulation (CBAM Regulation)
• a proposal for a Regulation amending the InvestEu Regulation

You can read about the background to the proposals announced on February 26, in our previous client  briefing “EU: Omnibus Sustainability Directive reforming sustainability reporting and due diligence”.

What is the Commission trying to achieve?

The measures are intended to ease the reporting and regulatory burden on in-scope organisations and to remove small and medium sized entities (SMEs) from the scope of the sustainability rules altogether. The European Commission is seeking to focus the EU corporate sustainability regulatory framework on the largest companies which are likely to have a bigger impact on the climate and the environment and are more able to absorb the costs of compliance. 

What is proposed?

Corporate Sustainability Reporting Directive

Timelines

The Stop the Clock Directive proposes to delay the application of CSRD by two years for companies that are currently required to report in 2026 (in relation to the financial year 2025) which broadly covers large companies and parent companies of large groups. Currently, no change is envisaged for entities that are required to report in 2025 (which are broadly public interest entities) or third-country parent undertakings which will need to report from 2029 (in relation to the financial year 2028).

Scope

The Amendment Directive significantly reduces the number of companies in the scope of CSRD. Presently, large EU companies (and EU parent companies of large groups) are required to report if they meet two out of the three criteria: (i) a balance sheet greater than EUR 25 million, (ii) a net turnover of greater than EUR 50 million, and (iii) an average number of employers of more than 250, whether on a stand-alone basis (or collectively where an EU entity has subsidiaries). This is set to change. To be in the scope of the amended CSRD, a large company or a parent company of a large group will need to have more than 1,000 employees and either have a balance sheet of more than EUR 25 million or a net turnover of more than EUR 50 million (again on a stand-alone or collectively with its subsidiaries).

A significant change will also be introduced in relation to third-country undertakings which will now only be in scope if they generate, on a consolidated basis, a net turnover in the EEA exceeding EUR 450 million (increased from EUR 150 million). They must also have either: (b) an EU branch which generated a net turnover exceeding EUR 50 million (increased from EUR 40 million).

It is worth noting that the 1,000+ employee threshold does not apply in relation to non-EEA entities and under the Amendment Directive they could fall in scope of the CSRD even if they do not have an EEA subsidiary that falls within the new scope of CSRD in its own right (whether on an individual or consolidated basis).

The Commission’s data indicates that the proposed amendments will remove around 80% of companies from the scope, bringing down the number of reporting companies from approximately 50,000 to 7,000.

No change to double materiality assessment

Despite rumours before the publication, the Amendment Directive does not propose to change the double materiality assessment which, in contrast to other internationally recognised standards, requires the analysis of both financial and impact materiality.

Revision of European Sustainability Reporting Standards (ESRS)

Companies subject to the CSRD must report in line with ESRS.  The Commission intends to revise ESRS to reduce the number of data points, clarify provisions which may be unclear and improve consistency with other legislation.  Sector specific standards will no longer be adopted.

Timing for the revised ESRS is currently unclear but the Commission is aiming to publish no later than six months after the Amendment Directive is adopted.

Taxonomy Reporting

Proposed changes to the Taxonomy Regulations Amendment will have a significant impact on taxonomy reporting. Currently, companies reporting under CSRD are automatically required to publish reports under Taxonomy Regulations as well. Under the Taxonomy Regulations Amendment, only the largest companies with more than 1,000 employees and net turnover over EUR 450 million reporting under CSRD will be in the scope of mandatory Taxonomy reporting. For companies with a net turnover of EUR 450 million or less, Taxonomy reporting will become voluntary unless a company makes claims that it is Taxonomy-aligned.

Voluntary reporting standards

For companies no longer in the scope of CSRD (i.e. those with up to 1,000 employees), the Commission will adopt voluntary reporting standards.  The standards will also act as a ‘shield’, as they will limit the information that companies or banks falling within the scope of CSRD can request from companies in their value chains with fewer than 1,000 employees.

Assurance

Provisions which allow moving from a limited assurance requirement to a reasonable assurance requirement will be removed.

Corporate Sustainability Due Diligence Directive

More time to prepare

The Stop the Clock Directive proposes postponement of the transposition deadline by one year to July 26, 2027. The application to the first wave of the largest companies will also be postponed a year and they will be required to comply with CS3D obligations by July 26, 2028 (rather than 2027).

Diligence requirements in complex value chains

Full due diligence beyond direct business partners will only be required if the company has “plausible information suggesting that adverse impacts have arisen or may arise there”.  Other sustainability due diligence requirements will be simplified, including reducing the frequency of periodic assessments and monitoring of partners from annually to five years.

Termination of business relationship

Under the Amendment Directive, companies will no longer be required to terminate business relationships as a measure of last resort where potential adverse impacts could not be prevented or mitigated.

Transition plan

Despite rumours suggesting otherwise, the requirement for the companies in the scope of CS3D to adopt a transition plan will continue to apply. However, an obligation to put such plan into effect has been replaced with a requirement to “include implementing actions”. This change aligns CS3D with already existing requirements of CSRD which uses the same wording.

Reducing trickle-down effect

The Amendment Directive aims to limit the information that companies under the CS3D can request from direct business partners with fewer than 500 employees to reduce the burden on smaller businesses. This restriction will apply unless the company requires additional information to complete the mapping, such as impacts not covered by existing standards, and cannot obtain this information through other reasonable means.

Civil liability

Under the Amendment Directive, the current provisions in CS3D setting out harmonised (EU-wide) civil liability, as well as the obligation for Member States regarding representative actions by trade unions or NGOs, will be removed. Consequently, civil liability and the legal standing of trade unions or NGOs will be defined by the national law of each Member State. However, this doesn’t mean that civil liability for CS3D violations will be removed entirely. Member States will be required to ensure that, if a company is held liable for damage caused by a failure to comply with the CS3D, the affected persons should have a right to full compensation, but not punitive damages.

Penalties

The Amendment Directive removes the requirement for Member States to introduce non-compliance penalties based on net worldwide turnover and the stipulation that any cap on penalties should be no less than 5% of net worldwide turnover. Instead, the Commission will be required to establish guidelines for penalties.

Carbon Border Adjustment Mechanism Regulation

Proposal

Significant changes to the CBAM Regulation are proposed including introducing a new de minimis threshold exemption of 50 tonnes per importer, which would simplify the requirements for SMEs and individuals. For those who remain in scope, the proposal aims to simplify the authorization of declarants, calculation of emissions, and management of CBAM financial liability. Finally, measures to strengthen anti-abuse provisions were also proposed.

Timings

The Stop the Clock Directive proposes to delay the requirement to purchase CBAM certificates until 2027 (rather than 2026).

Focus

The Commission believes that the new threshold will exempt around 90% of importers from CBAM obligations, while still encompassing over 99% of the emissions within its scope, thereby safeguarding the environmental nature of the Regulation.

InvestEU Regulation

The Omnibus proposal also includes several amendments to the InvestEU Regulation, aimed at simplifying the effectiveness of the programme.  The proposals include streamlining the application and approvals process, increasing flexibility regarding allocation of funds and strengthening support to SMEs by improving access to finance and reducing bureaucratic hurdles.

EU Taxonomy

In addition to the changes in scope brought about by the CSRD proposals, the Commission has proposed possible amendments that would simplify the EU Taxonomy Reporting Templates and data points, simplify some of the ‘Do no significant harm' (DNSH) criteria, and incorporate other simplifications such as introducing a materiality threshold that would make it voluntary to disclose Taxonomy-alignment where the company has less than 10% revenue or expenditure aligned with eligible activities.

Next steps

The legislative proposals have been submitted to the European Parliament and the Council for their consideration and adoption.

The European Commission presented the Omnibus package during the Plenary Session of the European Parliament on March 10, 2025 where it was met with mixed views. Concerns of some of the MEPs that the proposed changes are merely a deregulation tool which does not protect the EU sustainable agenda were rebutted by strong views of others that the Omnibus hasn’t gone far enough in protecting interests of the EU businesses and does not contribute to simplification of administrative burden sufficiently. The Council is expected to hold the first discussions on the Omnibus on March 11 and 12, 2025.

While the Commission has invited the co-legislators to ‘fast-track’ the Omnibus, following the early feedback from the European Parliament it appears that original expectations that the legislative process may take longer period of time is correct. While the Stop the Clock Directive changing the application/transposition timelines may pass in a matter of a few weeks, the Amendment Directive that includes material amendments to both CSRD and CS3D framework may take significantly longer to discuss and agree within both institutions and also between them. The Commission intends to review the CBAM Regulation later this year, with full legislative proposal in early 2026. 

How Eversheds Sutherland can help

We have extensive experience and expertise in advising clients on sustainability and ESG matters. Our team has been closely following the development of CSRD, CS3D, CBAM and Taxonomy Regulation as well as their delegated acts and related guidance. Please speak to your usual Eversheds Sutherland contact if you need help with the interpretation of CSRD, CS3D or any of the proposed omnibus package and their impact on your business. We can assist you with scoping analysis and identification of rules applicable to your organisation. We continue to monitor developments in this area and more briefings will follow as the Omnibus goes through the legislative process in the Parliament and the Council. 

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