EU Proposes Major Sustainability Reporting Reforms: What ESG Leaders Need to Know

On February 26, 2025, the European Commission introduced a significant legislative proposal—referred to as the first “Omnibus” Package—to streamline and refine the EU’s sustainability reporting framework. This proposal includes amendments to three key pillars of European sustainability regulation: the Corporate Sustainability Due Diligence Directive (CSDDD), the Corporate Sustainability Reporting Directive (CSRD), and the EU Taxonomy Regulation.

If adopted, the Omnibus Package is expected to simplify compliance obligations, reduce administrative burdens, and improve coherence across sustainability regulations in the EU. Below is a summary of the key proposed changes and what they could mean for your business.

At a Glance: Proposed Changes

Corporate Sustainability Reporting Directive (CSRD)

• Implementation delay: The application of CSRD reporting requirements for companies in Waves 2 and 3 (initially scheduled for 2026 and 2027) would be postponed by two years. This delay was approved by the European Parliament on April 3, 2025, following Council endorsement, to give companies more time to deliver high-quality disclosures.

• Scope reduction: Only large companies with more than 1,000 employees, and either over €50 million in turnover or €25 million in total assets, would be required to report under the CSRD. This change would reduce the number of affected companies by approximately 80%.

• Voluntary reporting for VSMEs: A voluntary ESG reporting standard will be introduced for smaller companies (fewer than 1,000 employees), limiting mandatory data requests from larger CSRD-reporting entities.

Corporate Sustainability Due Diligence Directive (CSDDD)

• Focus on direct suppliers: Companies will only be required to monitor direct suppliers, rather than the full value chain. This simplification supports clearer supply chain oversight while maintaining accountability.

• Reduced frequency: Due diligence assessments would be required once every five years (instead of annually) for companies with more than 500 employees. Additional assessments would be conducted as necessary, based on evolving risks.

EU Taxonomy Regulation

• Voluntary alignment for mid-sized companies: Companies that fall within the revised CSRD scope, and have a net turnover under €450 million, would be allowed to report on Taxonomy alignment voluntarily. However, non-EU companies with significant EU activity remain subject to CSRD requirements.

• Streamlined reporting: Proposed simplifications include reducing data points by nearly 70% and exempting disclosure on financially immaterial activities (less than 10% of turnover, capex, or total assets).

• Adjustments for financial institutions: Banks would be permitted to exclude exposures linked to companies no longer in CSRD scope when calculating the Green Asset Ratio (GAR).

Omnibus Proposal: Other Key Amendments

• Sector-specific ESRS standards removed: The proposal eliminates the mandate to develop sector-specific European Sustainability Reporting Standards (ESRS), aiming to simplify implementation and improve comparability.

• No shift to reasonable assurance: The transition from limited to reasonable assurance for sustainability reports is no longer planned, easing audit-related pressures in the near term.

• ESRS revisions: The Commission has proposed:

  • A substantial reduction in required data points,

  • Clarification of ambiguous provisions to ensure legal consistency,

  • Removal of sector-specific disclosures to reduce reporting complexity.

The double materiality principle remains unchanged. Companies must continue to report both on how sustainability factors impact their business and how their operations affect people and the planet. This ensures continued alignment with EU expectations around transparency and accountability.

Proposed Timeline Changes

• 2026–2027: CSRD Wave 2 and 3 reporting obligations postponed by two years.

• 2028: New transposition deadline for the first phase of CSDDD implementation.

These adjusted timelines aim to give businesses adequate time to update their systems and ensure the accuracy and quality of sustainability information reported to investors and stakeholders.

Strategic Considerations for ESG Leaders

If adopted, this reform package would reshape how companies approach sustainability compliance in the EU. Key next steps include:

• Reassess CSRD applicability based on the updated employee, turnover, and balance sheet thresholds.

• Review due diligence processes to align with the streamlined CSDDD requirements, particularly around supplier engagement.

• Evaluate voluntary Taxonomy reporting as a means to demonstrate sustainability performance, even if not mandatory.

• Monitor EU regulatory developments to stay ahead of further amendments or clarifications.

• Continue to comply with adjacent sustainability frameworks, such as the Sustainable Finance Disclosure Regulation (SFDR), which remains unchanged.

Looking Ahead

The Omnibus Package represents a significant step toward a more pragmatic and proportionate approach to sustainability reporting in the EU. For ESG leaders, the message is clear: while regulatory complexity may ease, stakeholder expectations around climate action, transparency, and credible data remain high.

Sustainability performance is still a strategic imperative—regardless of compliance thresholds. High-quality ESG data remains critical for building trust with investors, customers, and regulators.

We’ll continue to monitor developments and provide updates as the legislative process unfolds.