Omnibus Simplification Package – The European Commission’s change of heart on corporate sustainability
by Saga Eriksson, Doctoral Researcher
In February 2025 the European Commission introduced the Omnibus Simplification Package aimed at making changes to key sustainability reporting provisions outlined in the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD) and the Taxonomy Regulation. The main aim of the Package is to reduce the scope of reporting entities, while also making substantive changes to the number of data points required and limiting due diligence obligations to fewer tiers of the supply chain. This blog post discusses the key implications of the proposed changes and whether they can be seen as compatible with the spirit of the original legislative measures they are seeking to amend.
Commission proposal for simplifying the corporate reporting landscape
During the 2019-2024 European Commission term, several legislative measures were passed setting up a framework for better sustainability reporting by corporations and financial institutions. Key pillars of this framework included a baseline definition for sustainable economic activities set out in the Taxonomy Regulation and requirements around corporate environmental, social and governance (ESG) reporting in the Corporate Sustainability Reporting Directive (CSRD). Additionally, the Corporate Sustainability Due Diligence Directive (CSDDD) was introduced to specify how companies should identify and address adverse human rights and environmental impacts within their supply chains.
However, before the majority of these obligations within CSRD and CSDDD had come fully into effect, the European Commission brought forward a series of changes claiming to simplify the reporting landscape, given growing concerns over the EU’s competitiveness. These concerns have been at least partly driven by the changing political landscape after the latest European elections in summer 2024, where sustainability themes lost traction. Increasingly since then climate issues have fallen second to concerns over security and trade policy as political priorities have shifted.
Within the Omnibus Simplification Package, the Commission has suggested reducing the scope of companies covered by CSRD by up to 80%, restricting mandatory reporting to entities with more than 1000 employees. As a result of these changes, the scope of entities reporting their Taxonomy-alignment would also be reduced, leading to a reduction of required data points by 70%. Companies would also be exempt from assessing Taxonomy-eligibility and alignment for activities that form less than 10% of their total turnover, capital expenditure or total assets, thus considered to be financially immaterial. While the purported aim of the Package is to simplify reporting, it marks a clear departure from the underlying aims of the reporting scheme, meant to address the lack of high quality, accurate sustainability information. Further, the timing of changes raises questions around whether a fair chance was given for full reporting to come into effect and thus accurately assess the workability of existing measures before making revisions.
In addition to changes to sector-specific reporting and the volume of data points, the timeline for reporting was amended in the Stop the Clock Directive, agreed in April 2025. The Directive moved CSRD reporting forward by two years to 2027 for companies due to start reporting in 2025, and to 2028 for SMEs. The CSDDD transposition date was also moved forward by a year to July 2027. These delays risk worsening existing problems with lack of accurate data, most notably for the finance industry, who are reliant on CSRD data to be able to do their own reporting required under the Sustainable Finance Disclosure Regulation (SFDR).
Council and Parliament double down on reductions in scope
While the Commission proposal already marked a departure from the ambition of the original plans for better disclosure, the Council and Parliament positions further seek to reduce the scope of companies covered by reporting. In its June 2025 position, the Council suggested increasing the threshold for net turnover of reporting companies within CSRD to 450 million EUR from the Commission’s suggested 50 million EUR. The Council’s also proposed a threshold for companies subject to CSDDD, set at a level that would only cover entities with 5000 employees and 1.5 billion EUR turnover. In addition to this, further delays to CSDDD transposition were included in the Council proposal, while language around climate transition plans was made significantly weaker, imposing less definitive obligations to ensure plans are carried out.
In the European Parliament, the lead committee JURI has suggested in its report similarly high thresholds for turnover for companies to fall into the scope of reporting for CSRD, while watering down language on transition plans, value chain coverage and obligations to obtain information directly from business partners. All in all, the committee’s report paints a picture of reduced obligations for acting on potential adverse impacts of company operations. Restricting information gathering to that which is already publicly available and removing obligations to go beyond the most immediate parts of the value chain severely impact the ability to address most adverse human rights effects, which tend to occur at the start of value chains. Such impacts would in effect fall out of the scope of reporting.
With trilogues expected to start in October/November 2025, neither the Council nor Parliament position instill much confidence that the core intention of the original framework will be preserved. If the aim of the CSRD and CSDDD was to generate better and more reliable sustainability information, which would in turn impact the cost of capital for entities with better managed ESG and human rights related risks, then a valid question arises as to how this will be achieved when many companies are set to fall outside the scope of reporting?
The spirit of disclosure regulation – what is the aim of using better information as a regulatory tool?
Using disclosures and reporting as a way to reorient the economy towards better sustainability is premised on the idea that better information shapes the behavior of investors and companies. Investors are assumed to have an underlying preference for more sustainably operating entities, and thus once better information is facilitated, funding flows towards those entities accurately identified as performing better on ESG metrics. The assumption is that if there were better and more accurate sustainability information, then more sustainable economic activities would be better supported, speeding up the low-carbon transition. Better disclosures are also thought to lead to more accurate risk assessment and risk management, which in turn can lower the cost of capital for companies with better managed climate-related risks.
While there may be legitimate debate as to whether these incentive structures envisioned in the economics literature materialize in such a straightforward way, less information nonetheless makes it more difficult to distinguish between companies performing better on sustainability. More reliable disclosures can create accountability for entities to address and evaluate their impacts on the environment and broader society. Reducing the scope of reporting directly disadvantages those entities who have spent time and resources preparing for CSRD reporting who may now fall out of scope entirely. As reported, this creates the reverse of the intended incentives where better sustainability would be rewarded, weakening the operation of finance-led initiatives premised on better information.
The proposed changes to reporting raise questions around the Commission’s overall ambition on climate measures, following the undermining of such information measures, already seen as a next best option to more stringent, substantive regulation or economic measures such as carbon taxes. The changes have also been criticized for creating a false dichotomy between competitiveness and sustainability and are particularly alarming given continued adverse climate effects already being observed across the globe.
There also appear to be differing views between legislators and supervisors on the potential trade-off of reduced reporting, with the European Central Bank (ECB) warning against reducing the scope of reporting. Meanwhile, investors and other finance institutions have drafted a statement calling for the preservation of key measures, including climate transition plans, while asking for the scope of covered entities to remain in line with the Non-financial Reporting Directive (NFRD), a predecessor to CSRD. Other countries, such as Norway, have also shared their experiences regarding corporate responsibility measures in an effort to argue for the preservation of key parts of CSDDD in line with the UN Guiding Principles on Business and Human Rights.
The changing attitudes within the European legislative and executive institutions go against developments happening within the courts. Cases have been brought to the European Court of Justice (ECJ) against certain Taxonomy criteria perceived to act counter to environmental targets. While still under review, these cases point to shortfalls that have existed prior to efforts to reduce reporting. In addition to this, the ICJ’s recent advisory opinion on climate change set out state duties to prevent significant harm to climate systems, which could have implications for discussions around the CSDDD.
As discussed in a previous blog, the Opinion points towards duties for states to regulate the conduct of private actors, a duty which the suggested regulatory simplification can be seen to undermine. While there may be no specific details on how such regulation should look in practice in the Advisory Opinion (as noted e.g. here), the changes releasing companies from their obligations to make transition plans explicitly linked to the Paris Agreement can surely be considered counter to the idea of a duty to reign in harmful climate impacts. The suggested simplification therefore creates a landscape where adverse impacts continue to be hidden from view, creating a risk that they will remain unaddressed.
Conclusion
There is an argument to be made that the complexity of disclosures presents legitimate problems, particularly given potential overlaps in reporting required in the Taxonomy, CSRD and CSDDD. At the same time, there has been criticism from the finance industry that lack of data is making it difficult to accurately evaluate companies’ environmental performance. It is therefore at present not clear how the proposed changes within the simplification package help to address these current shortfalls.
Key provisions that would have brought additional accountability and incentives are directly undermined, preserving a status quo that does not adequately price in the environmental and human rights risks of company activities (given current effort to price in such risks has been deemed largely insufficient). If the Commission’s chosen vision for addressing climate change relies on efficient pricing to correct market failures around environmental externalities, it is difficult to see how the Simplification Package will do anything other than make this outcome less likely. General discourse often treats market-based measures such as increased reporting and disclosure as a more viable political compromise. This may be the case, but only if measures are truly ambitious and are given a genuine opportunity to apply in full.