Omnibus Package Proposed - EU Commission's Proposal on Sustainability Regulations

(Pictured:Jonathan Moore, Partner, Fieldfisher Ireland LLP)

On 26 February, the European Commission announced its long-awaited Omnibus Simplification Package. The new proposal aims to simplify the EU's corporate sustainability reporting and due diligence rules, significantly amending both the Corporate Sustainability Reporting Directive ("CSRD"), the Corporate Sustainability Due Diligence Directive ("CSDDD"), and the Carbon Border Adjustment Mechanism ("CBAM") with the following proposed key changes. 

It is important to note that these are legislative proposals only and are subject to a lengthy legislative process, therefore where relevant any existing national legislation in these areas continue to apply for the time being. 

CSRD 

• New scope: Around 80% of companies will be taken out of the scope of the CSRD with thresholds for compliance proposed to be raised to capture companies with 1,000 employees and either a turnover of above €50 million or a balance sheet total above €25 million. The threshold for non-EU parent companies has also been raised to those that have both an EU net group turnover in the EU of over €450 million and have at least one large EU subsidiary. 

• Higher scope for EU Taxonomy reporting: Only in scope EU companies or groups with a net turnover of €450 million will be required to disclose taxonomy information. Companies below this threshold will only have to make disclosures on specific data points related to certain claims made about the sustainability of their activities.

• Postponement: 2-year delay on reporting requirements for large companies that have yet to start reporting under the CSRD and for listed SME's (Wave II and III). 

• ESRS changes and sector specific standards: The Commission proposes to amend the European Sustainability Reporting Standards (ESRS) developed by EFRAG with the aim of substantially reducing the number of data points, clarifying provisions that have been deemed to be unclear and improving consistency with other pieces of legislation. This is a commitment by the Commission announced alongside the Omnibus and does not form part of the formal proposal. However, sector specific standards which were due to be adopted in June 2026 will also be removed as part of the proposal.

• Assurance requirements: The Commission will no longer be required to adopt reasonable assurance requirements as currently envisaged after 1 October 2028.

• Voluntary standards and value chain reporting: Companies will no longer be required to report on information of those companies in their value chain that are not covered under the scope of the CSRD. Further, in reporting on the activities of these companies they will not be able to seek information beyond what is specified in new "voluntary" standards to be developed by EFRAG. These will be based on the VSME standards (Voluntary Sustainable Reporting Standard for non-listed SMEs).

CSDDD

Unlike the CSRD, the CSDDD has not yet been implemented into the national law of EU Member States and is due to start applying for the first wave of companies from 2027.

• Postponement: Date for compliance delayed by one year until 26 July 2028. 

• Monitoring of due diligence processes: The frequency of assessments by companies of their internal due diligence processes will be reduced from every year to "at least every five years".

• Civil liability regimes and penalties for non-compliance: Penalties for non-compliance disconnected from the global turnover of companies deferring instead to national law on liability. 

• Removal of due diligence on indirect suppliers: Companies will no longer be required to map the adverse impacts of indirect suppliers in their supply chain. Due diligence obligations would be limited to a company’s own operations, those of their subsidiaries, and direct business partners only.

• Ending contracts: The obligation to terminate contracts with non-compliant suppliers will be removed. 

CBAM

• New cumulative annual threshold of 50 metric tons of mass goods per importer per year, thereby excluding  close to 90% of companies currently in scope, providing for a de minimis exemption for smaller importers.

What's next?

The legislative changes proposed will now be subject to the ordinary legislative procedure and as such will be passed to the European Parliament and Council for consideration. This means that both will have the opportunity to make additions or amendments to the proposals though the legislative process, so adoption of the changes in their current form is not certain. 

The legislative package proposed by the Commission is a directive and once agreed and adopted, Member States will have 12 months to transpose these changes into their national law as of the date of its adoption. Until this time, it is important to be aware that the sustainability legislation as it is implemented in the national laws of most EU Member States remains in effect. In particular the European Union (Corporate Sustainability Reporting) Regulations 2024 (S.I. 336 of 2024) which transposed the current CSR Directive on 6 July 2024, and stipulates criminal offences for non-compliance that remain in place until further amending legislation is implemented. The proposed divergence from these standards in the Omnibus legislation raises important issues for companies on how best to continue with their current/future reporting obligations and how to approach their compliance preparations.

Our expert cross-practice ESG Team here at Fieldfisher remains available to support you and your business if you have any questions or concerns relating to the implications of these changes. Please contact a member of our Dublin team here or our Belgian team here.