ASFI Blog: EU Omnibus Simplification Package
On 26 February, the European Commission published the Omnibus Simplification Package, a set of reform proposals which seek to simplify requirements across key existing EU sustainability-related regulations. The Omnibus Simplification Package is a direct response to the EU Competitiveness Compass announced in January , which builds on the 2024 Mario Draghi-led report, the Future of European Competitiveness. Specifically, the Package responds to two of the five identified 'horizontal enablers' of competitiveness identified in the Compass: simplification and lowering barriers to the single market.
The key changes material to sustainability-related reporting (and by extension market transparency), relate to the Corporate Sustainability Reporting Directive (CSRD), Corporate Sustainability Due Diligence Directive (CSDDD) and the EU Taxonomy. The reform package will undergo a multi-stage consultation process (see further detail below).
Read on for a summary of key proposed changes, their implications, and stakeholder reactions.
Summary of proposed changes
CSRD (i.e. ESRS reporting)
Reduction in total scope of the reporting directive from EU companies with 250+ employees and €50m net turnover to companies with 1,000+ employees and either €50m net turnover or €25m average balance sheet total at reporting date. This is estimated to reduce reporting entities in scope by approximately 85%, bringing the scope of CSRD in line with CSDDD.
Reporting requirements may still apply for companies under the reporting threshold but forming part of the value chain of an in-scope company. In this case, such companies would be required to provide data to enable the in-scope company to report on its Scope 3 emissions regardless of their size.
Delay of two years for 'Wave 2' and 'Wave 3' entities (i.e. now starting in 2028).
Requirement to conduct a double materiality assessment maintained
ESRS sector-specific standards (ESRS SEC1, which go beyond generic standards) proposed to be removed. These cover agriculture, farming and fishing; food and beverage services; mining, coal and quarrying; motor vehicles; oil and gas; power producers and utilities; road transport; and textiles, fashion.
CSDDD
Reduction in social and environmental due diligence requirements for entities in scope from whole of value chain diligence to only cover direct suppliers. Frequency of supplier monitoring to change from annually to every 5 years.
Requirement to adopt and implement transition plans, changed to requirement to adopt transition plans
Taxonomy
Proposed reduction in reporting scope, with only companies with 1,000+ employees (currently 500 employees) and €450 million net turnover individually or in aggregate as group) required to report Taxonomy alignment.
Reduction in scope of activities that mandatory reporting covers (i.e. for large entities described above). Under proposed rule, non-financial and financial entities do not have to disclose taxonomy eligibility and alignment for activities that are ‘below 10% of KPIs' denominators.’
Non-financials: If an activity comprises under 10% of total entity net turnover, capex, or opex, it is not subject to an assessment of Taxonomy alignment. The proposal also notes that opex will be treated differently due to an assessment that it is less decision-useful. Taxonomy-aligned opex only required to be reported if it aligns to activities covering above 25% of total entity net turnover.
Financials: Financial entities subject to several KPIs (e.g. credit institutions) would not have to report certain KPIs capturing activities that are not material for their business (e.g. green asset ratio for the trading portfolio, KPI for fees and commission for services other than lending) even if they make up more than 10% of the total revenue. The trading book KPI, and fees and commission KPI for certain financial institutions is postponed until 2027.
Simplifications to reporting requirements, from 78 data points to 28 (66% reduction). In case of credit institutions, these simplifications will reduce data points by 89%.
Do No Significant Harm (DNSH): Large entities (i.e. those still with mandatory reporting) are proposed to be allowed to report on activities which only fulfil certain DNSH requirements. In order to “provide an immediate relief for reporting undertakings already in the 2026 Taxonomy reporting exercise,” these are proposed to be implemented without a further review of DNSH criteria simplification which is also ongoing.
Implications and ASFI commentary
ASFI’s view is that some of these proposed reforms are foreseeable and make sense, for example those relating to the EU taxonomy that would allow disclosures on partial DNSH alignment and simplify DNSH criteria. Such proposals respond to concerns from market participants who have cited existing requirements as being overly stringent and prohibitive to the allocation of capital to transition, adaptation and other objectives.
Other proposed reforms - notably reduced CSRD and taxonomy scope, and CSDDD due diligence requirements - could risk creating fragmentation and undermining what the existing architecture was intended to do. In other words, they could complicate efforts to reduce information asymmetries, reduce transaction costs over the long-term relating to due diligence, and enhance risk and impact management information that is decision-useful for investors and companies alike. This is because the proposed changes could create a fracture in transparency – with good data from large companies, and limited data from others. This limits the effectiveness of the overall architecture to address transaction costs associated with sustainable investment - with bespoke due diligence required for investment in smaller entities who are not captured by the reporting requirements. It will also reduce the availability of comparable information across entities.
These potential outcomes may be compounded by the weakening of legal compulsion to implement transition plan requirements in CSDDD. Under the changes, entities ‘should include implementation actions planned and taken’ in their disclosures. This can be read in a variety of ways, but explaining actions taken does not equate to being accountable for disclosing actual impact and progress toward meeting defined targets.
Stakeholder reactions
Consistent with the above views, the reaction from business and finance sector stakeholders has been mixed. Measures to make the EU Taxonomy more usable at a technical level and simplify reporting burdens across the regulations have been welcomed by some, while others have expressed concern around the potential to create legal uncertainty, data gaps and inconsistent investor information (see e.g. statements by CDP and PRI members).
What next?
The proposal must undergo six formal steps of review and approval as part of the EU legislative process. The current Omnibus is the first step of the process. Comparative reform processes such as the CSRD implementation took 25 months to be enacted, so the full implementation of the changes may take some time.
According to reports, there was a push from some in the EU Commission to propose more severe rollbacks than those eventually presented in the Omnibus Package. For example, earlier drafts that were leaked show that the Commission wanted to make taxonomy reporting entirely voluntary. Similarly, some in the Commission wanted to remove the DNSH requirement altogether. Accordingly it appears likely the Omnibus will have a long and complicated road to approval with many potential changes and political alliances required to secure reforms.