The EU ESG omnibus proposals were first introduced when president of the European Commission (the Commission) Ursula von der Leyen, announced in November 2024 a proposal to streamline and align EU ESG disclosure and reporting rules.

They are a set of proposals to review, simplify and amend the following three key pieces of EU sustainability-related legislation.

• The Corporate Sustainability Reporting Directive (CSRD)¹, which has been in force since July 2024 and requires companies to disclose detailed information on their impact on the environment and human rights issues, including their greenhouse gas emissions.
• The Corporate Sustainability Due Diligence directive (CSDDD)², a law that requires companies to consider the social and environmental impact of their operations, as well as implement climate transition plans. Member states have until 2026 to adopt it to national law.
• The EU Taxonomy for sustainable activities (EU Taxonomy)³, a classification system to set the boundaries of which economic activities are considered sustainable (currently limited to environmental activities) and prevent greenwashing, which has been in force since 2020.

Why have the EU ESG omnibus proposals caused controversy? 

The CSRD was expected to require c.50,000 undertakings to report, including thousands of multinationals and their EU subsidiaries. EU member states were each expected to adopt national legislation and had until 6 July 2024 to transpose the CSRD into their national laws. Despite this some EU member states have yet to transpose the CSRD into national law.

Mario Draghi, the former president of the European Central Bank, publicly stated that the EU’s ESG reporting burden reduced EU competitiveness and made it harder for companies to scale up and compete with the US and China. In addition, the European Council in the Budapest declaration on the New European Competitiveness Deal of November 2024 declared that reporting burdens should be reduced by 25%. 

Some EU countries viewed the existing rules as fit for purpose and have favoured leaving the CSRD, CSDDD and EU Taxonomy as they are, on the basis that increased transparency facilitates additional sustainable investment, however other countries felt that the rules should either be delayed, or that the rules should be both delayed and simplified. 

In the US, ESG regulations being brought through by the SEC have been halted by President Trump during 2025. While the EU ESG omnibus proposals are unrelated to decisions taken in the US, there has been some concern that the EU could become an outlier in having a significant ESG reporting burden for corporates, particularly given the recent approach to ESG in the US. It seems likely that this has contributed to the decision to implement the simplifications.

Certain asset managers higher up in the value chain of the economy were hoping that the additional reporting requirements would result in real economy data collection becoming more available and streamlined helping to comply with their obligations under sectoral sustainability legislation such as the Sustainable Finance Disclosure Regulation⁴. Many had also spent resources (both external and internal), preparing to report. 

The current state of play

After three months of speculation and leaks in the financial press, on 26 February 2025 the EU issued a press release with four core documents provided:

• a Q&A document with a detailed breakdown of the key simplifications proposed;
• Omnibus 1⁵ – to be brought into law by 31 December 2025, which covers the proposed delay to the timetable (see below);
• Omnibus 2⁶ – which contains material amendments and expected to be on a longer timetable; and
• a Call for Evidence on the Taxonomy Delegated Acts (detailed pieces of secondary legislation which accompany the EU Taxonomy).

What are the changes proposed to CSRD?

• Reduction of the scope of reporting companies: If adopted, the reporting requirements would only apply to large undertakings that have more than 1,000 employees and either a turnover above €50m or a balance sheet total above €25m. This means that the number of companies in scope will reduce by about 80%. The new scope will be more closely aligned, but not identical to the key scope thresholds of the CSDDD. 
• ‘Value chain cap': For companies which will no longer be in the scope of the CSRD, as per the amended scope (see the paragraph above), the Commission will adopt a voluntary reporting standard, based on the standard for SMEs (VSME) developed by the European Financial Reporting Advisory Group (EFRAG). That standard will act as a shield, by limiting the information that companies or banks falling into the scope of the CSRD can request from companies in their value chains with fewer than 1,000 employees.
• Commitment to revise the European Sustainability Reporting standards (ESRS): The Commission will revise the delegated act establishing the ESRS, including substantially reducing the number of data points, clarifying provisions deemed unclear and improving consistency with other pieces of legislation. 
• Deletion of sector-specific ESRS: The proposal will remove the requirement for sector-specific standards, which would have significantly supplemented the ESRS as they stand today.
• Removing the reasonable assurance standard (which was to be required by October 2028): However, the new proposal is for the limited assurance requirement to remain and not to require reasonable assurance in 2028, as was originally intended. This is proposed to deal with the increased costs associated with reasonable assurance. 
• A two-year grace period, or “stop the clock” for those who have not yet reported: The proposals suggest postponing by two years the entry into application of the reporting requirements for large companies that have not yet started implementing the CSRD and for listed SMEs (so-called wave 2 and 3 e.g., those companies that have not been subject to the previous regime under Non-Financial Reporting Directive⁷ that are due to report in 2026 and 2027) in order to give time for the co-legislators to agree to the Commission's proposed substantive changes. 

What are the proposed changes to the CSDDD?

• A one-year delay has been introduced with the first phase of the application delayed until 2028. Guidelines will be produced in 2026, allowing companies to better prepare.
• Full value chain due diligence will be limited to a reporting entity’s direct business partner (subject to carve outs).
• Updates to be required every 5 years rather than every year, unless there are reasonable grounds to require updating more frequently.
• The removal of the obligation to terminate the business relationship as a last resort measure.
• The trickle-down effect from in-scope large businesses to smaller businesses reduced by limiting the required information to the requested information from SMEs to those specified in the CSRD voluntary sustainability reporting standards (VSME standard), with certain carve outs. 
• Removing the mandatory civil liability requirement and allowing EU member states to determine civil liability provisions.
• Aligning the requirements on the adoption of transition plans for climate mitigation with the CSRD, resulting in transition plans not being required to be “put into effect” i.e., implemented.
• Introduces a maximum harmonisation provision to ensure that EU member states do not set a higher bar in relation to due diligence obligations across the EU.
• Removal of the review clause on inclusion of financial services firms in scope.

What are the proposed changes to the EU Taxonomy?

A consequence of the proposal to significantly limit the scope of CSRD, is that those entities no longer in scope will no longer have to report on their EU Taxonomy alignment on a mandatory basis, although many may still choose to do so. 

If an entity has only met certain EU Taxonomy requirements they may report on their partial EU Taxonomy alignment, allowing them to demonstrate the efforts undertaken towards full EU Taxonomy alignment. 

In addition, the Commission has issued a Call for Evidence potentially amending the Taxonomy Disclosures Delegated Act, the Taxonomy Climate Delegated Act and the Taxonomy Environmental Delegated Act. This Call for Evidence is open for four weeks from 26 February 2025. 

The proposals aim to:

• simplify the reporting templates and reduce the number of data points by almost 70%;
• limit the mandatory assessment of EU Taxonomy eligibility and alignment of their economic activities to those which are only financially material for their business (e.g. those exceeding 10% of turnover, capex, or assets);
• amend the main key performance indicators of financial institutions, and in the case of certain credit institutions, the simplification of templates could result in a reduction of reported data points by 89% (a similar reduction is likely for other financial undertakings); and
• simplify the most complex “Do No Significant Harm” criteria for pollution prevention and control related to the use and presence of chemicals that apply horizontally to all economic sectors under the EU Taxonomy. 

Additional changes

Although not the focus of this note, the suite of proposals also include proposals for amending the following regulations:

• the Carbon Border Adjustment Mechanism Regulation, which among other things, would exempt 182,000 small importers and simplify the compliance process; and
• the InvestEu Regulation.

Issues and conclusions

For those who followed the leaks reported in the press, the EU ESG omnibus proposals are not surprising.

If the proposals are adopted, the scope of CSRD is to be significantly reduced. The employee threshold moving from at least 250 to at least 1,000 represents the most significant change proposed and will result in significant cost savings to businesses. 

Consequently, the availability of data from real economy businesses will be significantly reduced. Market participants who were viewing the CSRD as assisting in helping bridge their own data gaps (for either mandatory or voluntary reporting) will perhaps no longer see the CSRD as fulfilling this role. 

The scope thresholds of CSRD and CSDDD are not aligned by the proposals, which, if the proposals are adopted, would be as follows: 

• CSRD: >1,000 employees (and >€50m revenue or €25m balance sheet total); and
• CSDDD: >1,000 employees (and >€450m revenue).

Market participants may view this as a wasted opportunity for simplification, which is the core aim of the EU ESG omnibus proposals.

The EU ESG omnibus proposals do not change the requirement in CSRD for a “double materiality” assessment for those entities who will still be reporting pursuant to CSRD. Some had speculated that this may have been amended by the proposals. 

Some view the “stop the clock” provision under CSRD for two years as unnecessary. It will allow breathing space for businesses who were in the process of preparing to report under CSRD. However given that the changes to the scope are expected to reduce the number of reporting entities by 80%, if the proposals are adopted, this would result in the majority of these businesses not being required to report in any event. However, it is anticipated that the two-year delay is passed into law prior to the end of 2025, whereas the other proposals contained in Omnibus 2 appear to be on a longer timetable. There could be a scenario in which the reduction in scope is amended as it passes through into law, hence providing many businesses a valuable two-year window to prepare to report. 

With respect to CSDDD, the proposed removal of mandatory civil liability and the due diligence requirement being limited to direct, Tier 1 suppliers will be seen as significantly reducing its impact. 

Next steps

The EU ESG omnibus proposals will now pass to the European Parliament and the Council of the European Union. It is possible that these proposals will be amended during the EU legislative process. 

Green campaigners have staged protests in Brussels since the announcements on 26 February 2025. It is expected that the EU ESG omnibus proposals will continue to be debated extensively in the financial press, causing significant controversy. 

It seems prudent that businesses who were preparing to report under CSRD continue to prepare, given that the proposals do not yet reflect confirmed legal changes. Indeed, the proposed changes to CSRD may not even take effect until after the original reporting deadlines. 

Additionally, for entities who were preparing to report under CSRD and believe that these proposals mean they will no longer be in scope, it would be prudent to review the VSME standard developed by EFRAG, in respect of which the Commission intends to issue a recommendation as soon as possible. It is likely that this standard will be requested by value chain counter-parties who remain in scope of CSRD.

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¹ EU 2022/2464
² EU 2024/1760
³ EU 2020/852
⁴ EU 2019/2088
⁵ COM/2025/80 final
⁶ COM/2025/ 81 final
⁷ EU 2014/95