In January 2025, the European Commission released its Competitiveness Compass for the European Union (EU), outlining its strategic plans for the next five years. This initiative focuses on enhancing the EU’s competitiveness and driving economic growth. A key priority identified was simplifying the regulatory landscape and reducing the reporting burden on businesses. To achieve this, the Commission set targets to cut administrative requirements by at least 25% for all businesses and by at least 35% for small and medium-sized enterprises (SMEs).
Following the release of the Competitiveness Compass in January 2025, on February 26, 2025, the European Commission introduced its first Omnibus package of proposals aimed at simplifying and optimising reporting requirements while upholding transparency and ensuring compliance in alignment with the European Green Deal.
Sustainability reporting
Sustainability reporting requirements in the EU have undergone significant changes in recent years, particularly with the introduction of the Corporate Sustainability Reporting Directive (CSRD). This directive replaced the previous Non-Financial Reporting Directive (NFRD), applying for the first time to the initial group of entities in 2024 alongside the related EU Taxonomy. Additionally, the Corporate Sustainability Due Diligence Directive (CSDDD), which has yet to take effect, will further impact reporting obligations.
Key amendments and simplifications to the CSRD
Reduction in scope
Under this Omnibus package, the scope of the CSRD would be adjusted to apply only to large undertakings with more than 1,000 employees, reducing the number of entities covered by approximately 80%. This change would better align the CSRD with the CSDDD, ensuring greater consistency between the two regulations. Smaller large companies that are not subject to mandatory reporting would have the option to report voluntarily using simplified standards. These standards, to be published by the European Commission, will be based on the Voluntary SME standard developed by the European Financial Reporting Advisory Group (EFRAG).
Postponement of reporting requirements
It is proposed to postpone the reporting requirements for wave 2*¹ and wave 3*² companies by two years. This is to prevent undertakings from coming into scope under current requirements and then falling out of scope again due to the subsequent changes in thresholds, having already incurred costs to prepare a sustainability report.
*¹ Thresholds for wave 2 companies under the CSRD:
- As of 1st January 2025 (reporting in 2026), for large companies that exceed two of the following thresholds:
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- 250 employees,
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- €25,000,000 on the balance sheet,
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- €50,000,000 net turnover.
*² Thresholds for wave 3 companies under the CSRD:
- As of 1st January 2026 (reporting in 2027) for listed SMEs.
Revision of the European Sustainability Reporting Standards (ESRS)
The European Commission plans to revise the first set of ESRSs to streamline reporting requirements and strengthen alignment with the sustainable finance framework. The goal is to adopt the revised ESRS Delegated Act within six months of the proposed CSRD amendments. This revision will reduce the number of ESRS data points, clarify ambiguous requirements, enhance consistency with EU legislation, and provide clearer guidance on applying the double materiality principle. Additionally, interoperability with global standards will be improved. These changes aim to ease the reporting burden for all entities and mitigate the trickle-down impact on SMEs and smaller large companies outside the CSRD’s scope.
Assurance requirements
The CSRD mandates that companies disclose sustainability information with an opinion from a statutory auditor or, depending on Member State options, an independent assurance service provider. To reduce the reporting burden, the European Commission proposes eliminating the transition from limited to reasonable assurance. Additionally, rather than developing a dedicated assurance standard, the Commission will introduce targeted assurance guidelines by 2026.
Key amendments and simplifications to the CSDDD
The proposal includes delaying the transposition deadline for Member States from July 2026 to July 2027 and postponing the application date for the first wave of companies from July 2027 to July 2028. At the same time, the adoption of general guidelines will be accelerated to July 2026. These guidelines aim to help companies implement due diligence cost-effectively, minimising legal expenses and ensuring industry-wide consistency.
Additionally, due diligence obligations would be limited to direct (tier 1) business partners, exempting companies from assessing indirect partners unless there is credible information suggesting potential adverse impacts. This approach reduces the burden on businesses and their partners, particularly SMEs, while still requiring thorough assessments when necessary.
To identify adverse impacts in the value chain, large companies should restrict information requests from their SME and small midcap (SMC) direct business partners (companies with no more than 500 employees) to what is specified in the voluntary sustainability reporting standards (VSME standard) under Article 29a of the CSRD. Additional information can only be requested if it is essential and cannot be obtained by other reasonable means. This proposal seeks to minimise the trickle-down effect and reduce indirect compliance costs for SMEs and SMCs.
Key amendments and simplifications to the Taxonomy
The Omnibus proposal suggests that the assessment of Taxonomy-eligible and aligned activities should be limited to those that are financially material to an entity’s business. This would be implemented by assuming activities are not material if their cumulative value is less than 10% of the KPI’s denominator. Additionally, reporting templates would be simplified, including a significant reduction in reported data points—by 89% for credit institutions, for example.
In conclusion…
The European Commission’s first Omnibus package streamlines sustainability reporting, reduces administrative burdens, and enhances regulatory clarity. By refining the CSRD, CSDDD, and Taxonomy requirements, these changes aim to balance transparency with practicality, ensuring a more efficient and business-friendly framework. Get in touch if you want to know how this will impact your business.
Source:
[1]: DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL
Mark Wirth
Mark Wirth
