Omnibus Simplification published – Scope and audit requirements curtailed under the CSRD, CSDDD and EU taxonomy

The Omnibus Simplification, published by the European Commission on 26 February 2025, proposes numerous amendments to the current text of the ‘Corporate Sustainaibliy Reporting Directive 2022/2464’ (CSRD) – which, in turn, amends the Annual Accounting Directive 2013/34  – , the ‘Corporate Sustainability Due Diligence Directive 2024/1760’ (CSDDD/CS3D), and provides for adjustments to the ‘Taxonomy Regulation 2020/852’(EU Taxonomy).

The Omnibus Simplification; a two-track approach

The Omnibus Simplification is a proposal of the European Commission that encompasses two separated, but interlinked, legislative proposals aiming to “simplify” the main EU ESG obligations. In that regard, the European Commission applies a two-track approach by proposing two separated but interlinked amending Directives. The First Proposal (COM/2025/80 final) postpones reporting requirements (i.e. the so-called ‘Stop-the-Clock’ proposal) and announces a revision of the ESRS. Subsequently, the Second Proposal (COM/2025/81 final) introduces more significant changes, including narrowing the CSRD scope for non-listed companies and modifying due diligence obligations under CSDDD.

The changes it contains are not yet applicable. Both proposals must be negotiated and, if necessary, amended by the European Parliament, the European Commission and the Council of Ministers (a process known as trilogue). Following the trilogue negotiations, the European Commission's proposal must be formally adopted in its current form by the Council of Ministers and the European Parliament. Only then can the Omnibus Simplification enter into force as EU law after which Member States still need to transpose it into national law.

Regarding the First Proposal, the EU Council Representatives (Coreper) approved on 26 March 2025 the Commission’s postponements without a change. On 1 April 2025, the European Parliament voted to fast-track its work on the Stop-the-Clock proposal to postpone the application of social and environmental reporting and due diligence measures. On 3 April 2025 with a clear majority of 531 votes for, 69 against and 17 abstentions, the members of the European Parliament voted for the Stop-the-Clock approach according to which CSDDD is postponed by one year and CSRD is postponed by two years. Next steps are formal approval by the Council and publication in the Official Journal to enter into force. Subsequently, according to the current text of the First Proposal, Member States must transpose this amending Directive into national law by 31 December 2025.

Key content of the Omnibus Simplification

The initiative specifies the obligations of companies in certain areas, while significantly easing a large number of due diligence requirements.

CSRD: The Omnibus Simplification aims to adapt the CSRD to protect the competitiveness of European companies. To this end, the conditions for the scope of application will be tightened and the reporting requirements will be significantly reduced. The date of application of the CSRD is to be postponed (at least for companies/groups which are not yet required to report for the financial year 2024).

CSDDD: The proposed amendments concern, inter alia, the effective date of the CSDDD and corporate liability. In principle, the CSDDD, which entered into force on 25 July 2024 but is set to become applicable in 3 stages as of 2027, contains a complex set of obligations requiring companies to act/exercise due diligence to protect human rights and the environment throughout their supply chains worldwide.

EU-Taxonomy: The proposed adjustments and changes to the EU Taxonomy (including the Climate and Environmental Delegated Acts based on the EU Taxonomy) are intended to simplify reporting and significantly reduce the number of data points to be collected and monitored. A new group - proposed within the Omnibus Simplification - (more than 1,000 employees and less than EUR 450 million net turnover in the financial year) should also be exempted from reporting on certain aspects of the EU Taxonomy under the CSRD.

The main changes proposed include the following (non-exhaustive list):

1. CSRD

• Application of the CSRD is (partially) deferred to financial years as of 2027:
  The obligation to publish a sustainability statement under the CSRD applies to financial years starting on or after 1 January 2025 for all large companies/groups as defined in Article 3 (4) or (7) of the Accounting Directive (i.e. those exceeding two of the following three criteria: balance sheet total of more than EUR 25 million; net turnover of more than EUR 50 million; average number of employees of more than 250).
  The Omnibus Simplification proposes to postpone the obligation of publishing sustainability statements for large companies/groups by two years. Therefore, large companies/groups would only have to publish sustainability statements for financial years starting on or after 1 January 2027.
  The Omnibus Simplification does not provide any relief for large companies/groups (mainly large EU-listed companies) that are already required to include a sustainability statement in their management reports for financial years beginning on or after 1 January 2024.
• Reduction of the scope of the CSRD:
  Large companies/groups (see above for definition) and small and medium-sized companies/groups ("SMEs") as defined in Article 3 (3) of the Accounting Directive are subject to the obligation of publishing a sustainability statement if they are public interest SMEs (this usually means that the SME has issued securities that are traded on an EU stock exchange).
  The Omnibus Simplification will now limit this framework so that the obligations to publish a sustainability statement under Art. 19a and Art. 29a of the Accounting Directive are less frequently applied. Accordingly, the provisions of Art. 19a and Art. 29a of the Accounting Directive will only apply to large companies/groups (as defined currently) with an average of more than 1,000 employees during the financial year. SMEs are to be excluded from the scope of application, regardless of whether they are capital market oriented or not. The European Commission speaks of an 80% reduction in the number of companies in scope of the CSRD, and states that this would lead to an alignment of the scope of the CSRD and the CSDDD.
• Avoiding a “Trickle-Down“-effect:
  As mentioned above, SMEs are to be excluded from the scope of the CSRD in the future as part of the Omnibus Simplification (i.e. they do not have to publish a sustainability statement in their annual accounts). However, the European Commission sees a risk that business partners of SMEs that are (still) required to publish a sustainability statement could put pressure on SMEs to collect the relevant data. The reason for such pressure from the SME's business partners could be that they, as a large company/group with more than 1,000 employees, will also have to publish a sustainability statement in the future and will therefore be dependent on the data sets of their SME business partners. The European Commission refers to this as the “trickle-down”-effect.
  The European Commission intends to work with the European Financial Reporting Advisory Group (EFRAG) to develop voluntary standards that SMEs (and other companies/groups that are not required to publish a sustainability statement under the CSRD) can use. These voluntary standards should then be sufficient to ensure that potential business partners of SMEs that are required to prepare a sustainability statement or report can also access the required data. They are intended to provide a metaphorical shield to protect SMEs (and the other companies/groups not required by the CSRD to publish a sustainability statement/report) from data requests within the supply chain (also known as a ‘value chain cap’).
• Increasing the thresholds for sustainability information for non-EU companies:
  The Omnibus Simplification proposes to increase the threshold for the publication of sustainability reports for non-EU companies from the current EUR 150 million to EUR 450 million. Please note that the number of employees is not a relevant factor in relation to this threshold.
  The thresholds for the publication of a sustainability report at the level of the branch of the non-EU company will also be aligned with the net turnover thresholds applicable to large companies under Article 3(4) of the Accounting Directive (net turnover of more than EUR 50 million).
• Reduction of the audit requirements for annual financial statements:
  Until now, it was intended that sustainability statements would initially be audited on a Limited Assurance basis. After a few years, this was to be changed to a Reasonable Assurance audit. The European Commission proposes to abolish the latter (Reasonable Assurance). Moreover, the European Commission proposes to issue targeted guidance on the Limited Assurance audit by 2026.
• Limiting and reworking of the existing ESRS: 
  The ‘European Sustainability Reporting Standards’, or ESRS for short, are determined to apply to the sustainability statements required by the CSRD. These were only adopted on a cross-sector basis in July 2023 and are intended to be supplemented by sector-specific ESRS from 2026.
  The European Commission proposes to drop the sector-specific ESRS. It also aims to revise the adopted ESRS in order to simplify and streamline them while ensuring greater legal certainty. This revision will be achieved by deleting data points and providing more flexibility. Since the ESRS are determined by the Commission itself by means of a delegated regulation, the Commission can revise these without consulting or need for approval of the other EU institutions. Regarding the process of simplifying the ESRS, the European Commission asked the ‘European Financial Reporting Advisory Group’ EFRAG to provide its work plan by 15 April 2025 for developing the technical advice, which is set at 31 October 2025. 

2. CSDDD

• Application of CSDDD is deferred by one year to 2028: 
  The European Commission's Omnibus Simplification proposes to extend the deadline for transposing the CSDDD into national law by one year. As a result, the initial application of the CSDDD will be postponed from 26 July 2026 to 26 July 2027, so that the respective obligations will apply to companies for the first time from 26 July 2028. In future, the following timeframes will apply:
  o    At least 5,000 employees + EUR 1.5 billion turnover → first application of the CSDDD under Omnibus 26 July 2028
  o    At least 3,000 employees + EUR 900 million turnover → first application of CSDDD under Omnibus 26 July 2028
  o    All other companies subject to the CSDDD (at least 1,000 employees + EUR 450 million turnover) → first application of the CSDDD under Omnibus 26 July 2029
  
  The postponement would therefore primarily benefit companies that are the first to be affected by the CSDDD. There will be no change in the timetable for companies covered in the second or third stage.
• Monitoring and due diligence requirements shall be limited to direct suppliers:
  In its current form, the CSDDD requires companies to assess and identify actual and potential adverse impacts along the entire ‘chain of activities’. This includes their own activities, those of their subsidiaries and those of all direct and indirect business partners. The European Commission now plans to limit these due diligence requirements to its own activities, those of its subsidiaries and those of its direct business partners. In principle, indirect business partners would no longer need to be checked unless there are specific indications of risks or breaches. This change would bring the monitoring and risk management obligations into line with the German Supply Chain Due Diligence Act (LkSG). The LkSG also only provides for monitoring direct suppliers, i.e. counterparties.
  In this context, the European Commission also plans to extend the period for regular monitoring without a specific reason to five years (currently one year). This is intended to significantly reduce the burden on both the companies affected and their business partners, who have to deal with extensive requests for information as part of the monitoring measures (reduction of the so-called "trickle-down effect").

• The duty to terminate the contract is to be omitted:
  The current version of the CSDDD requires companies to terminate the contractual relationship under certain conditions where there are serious negative impacts and where less severe measures such as suspension of the contractual relationship and corrective action plans have failed. In this respect, the current form corresponds to the LkSG (see Section 7 (3) LkSG). This obligation to terminate business relationships will now be removed without replacement in order not to burden supply chains. However, a temporary suspension of the contractual relationship may still be indicated.
• Mitigation of sanctions and civil liability:
  Despite the Omnibus Simplification, the risk of civil liability for damage caused by breaches of the CSDDD remains. However, the newly introduced reference to national law gives member states more flexibility regarding its organization. In its proposed amendments, the European Commission intends to remove from the CSDDD the precise specifications of factual requirements for civil liability, leaving this to member states' national law. As the basis of the claim will in future be governed by national civil law, there may be differences in implementation between countries without uniform harmonisation by the CSDDD. Under current German law, civil liability is likely to arise only in exceptional cases. Under Section 3(3) of the LkSG, a breach of the obligations under the LkSG does not give rise to civil liability. Nonetheless, this does not affect civil liability established independently of the LkSG.
  The Omnibus Simplification also proposes to amend, but not to repeal, the CSDDD's provisions on fines. Instead of a Europe-wide harmonised range of fines, the legal details of liability are now to be left to the member states, with the provison that the fines as a whole are proportionate (both in relation to turnover and to the infringement). In order to ensure comparable sanctions in the different member states, the Commission intends to issue guidelines concerning its cooperation with the member states.
• Climate plans should no longer need to be implemented:
  The current version of the CSDDD requires companies to develop and implement a plan to mitigate the effects of climate change. The Omnibus Simplification requires companies to adopt a climate protection plan with measures for its implementation. This means that there is no longer an obligation to actually implement the climate protection plan, but rather to include planned and already implemented measures. This change is intended to better align the CSDDD with the sustainability reporting under CSRD.
• The burden on SMEs is to be eased:
  The Omnibus Simplification also aims to especially reduce the burden on small and medium-sized enterprises (SMEs). On the one hand, this reduction results from the fact that monitoring measures no longer have to be carried out annually (less frequent controls). On the other hand, the initiative stipulates that only limited information may be requested from SMEs in order to determine the areas of business activity in which negative impacts on the environment or human rights are most likely or most severe (so-called "mapping"). In principle, such requests should not extend beyond the information contained in the CSRD's Voluntary Reporting Standards for SMEs (VSME).
• Plan of engaging with stakeholders less frequently:
  To date, the involvement of stakeholders/stakeholders has been required at many stages of the implementation of and compliance with the CSDDD due diligence requirements. In addition to those directly affected, stakeholders include consumers and/or human rights and environmental organisations. The group of stakeholders to be involved is now to be reduced to those directly affected and their representatives. The areas of due diligence in which involvement is required shall also be reduced.
• Commission seeks greater harmonisation of national supply chain acts:
  The aim is to further harmonise the implementing legislation of the individual EU states, such as the LkSG, and to create a uniform 'level playing field'. Thus, the areas in which member states are not allowed to adopt divergent rules should be extended to include: due diligence requirements at the (company) group level, requirements for the identification of adverse impacts (excluding requirements for the termination of contractual relationships, preventive measures and the remediation of actual adverse impacts), and requirements for the grievance mechanism.
  Extending harmonisation to these additional provisions would prohibit member states from introducing stricter requirements or rules when transposing these provisions into national law. The result would be a more uniform legal situation within the EU.

3. EU-Taxonomy

• Newly introduced thresholds limit the applicability of the EU Taxonomy's disclosure requirements for capital expenditure:
  Under Article 8 of Regulation (EU) 2020/852 (“EU Taxonomy”), companies were previously required to disclose the amount of their capital expenditure (CapEx) and operating expenditure (OpEx) in order to allow an assessment of the extent to which the company's activities can be considered environmentally sustainable. The Omnibus Simplification aims to remove this requirement and replace it with an 'opt-in' regime.
  The proposal affects large companies/groups (pursuant to Art. 3 (4) or (7) of the Accounting Directive i.e. large companies/groups which exceed two of the following three criteria: balance sheet total of more than EUR 25 million; net turnover of more than EUR 50 million; average number of employees of more than 250), whose net turnover does not exceed EUR 450 million and which employ on average more than 1,000 employees.
  These companies/groups would only be subject to the disclosure requirements of Article 8 of the EU Taxonomy if they themselves declare that their activities comply or partially comply with the EU Taxonomy (opt-in regime). In this case, the disclosure requirement is limited to capital expenditure and turnover, while the disclosure of operating expenditure can be made on a voluntary basis.
  The European Commission expects that the implementation of this proposal would significantly reduce the cost of compliance with the EU Taxonomy for all companies.
  It should be noted that this exemption would only apply to non-financial companies. All companies operating in the financial sector and falling within the scope of Article 8 of the EU Taxonomy would continue to disclose information in accordance with Article 8 of the EU Taxonomy.  
• Streamlining of EU Taxonomy reporting requirements in conjunction with the CSRD:
  The additional information to be provided on the sustainability of planned investments and financial investments is largely limited by the newly proposed articles in the Accounting Directive and will only be optional.
• Announced revision of the Do No Significant Harm (DNSH) principle:
  The European Commission also intends to revise the content of the EU Taxonomy. Currently, in order to meet the requirements of the EU Taxonomy, it is not sufficient to simply categorise the respective activities that are eligible for Taxonomy classification. In fact, it is also necessary to assess whether the very activity that is eligible for the Taxonomy does not significantly compromise another sustainability objective of the EU Taxonomy. For example, reforestation may meet one of the environmental objectives in the EU Taxonomy, but if reforestation involves covering a lake, this would significantly compromise another environmental objective (protection of water and marine resources).
  Whether an activity pursues or supports one environmental objective, but on the other hand has a negative impact on another environmental objective, has sometimes been very difficult to determine and present. The European Commission now seems to share this view and is proposing that in such cases, where there is no significant risk of major damage, the DNSH criteria should not be applied.

4. Conclusion

• At first glance, the simplifications of the CSRD, CSDDD and EU Taxonomy proposed by the European Commission appear to relieve SMEs in particular of their disclosure obligations. At second glance, however, it should be noted that the Omnibus Simplification is only a proposal, which is not yet binding and may be significantly amended or even rejected. Although this is only the Commission's first initiative, it is likely that there will be simplifications for companies. As the reporting requirements under the CSRD are becoming clearer and the data points to be collected are very extensive, many companies/groups find themselves in an unfortunate position: if they want to prepare for the eventuality that the CSRD simplifications of the Omnibus Simplification are rejected, they need to collect and analyse complex data points in a timely manner, which may become obsolete if the Omnibus Simplification becomes law. However, if they rely on the current version of the European Commission's proposal, there is a risk that if the Omnibus Simplification is rejected, the data points will not be collected and interpreted in time, resulting in substantial penalties.
• Excluding SMEs also seems to be reasonable. However, not all SMEs have been included from the outset, but only those listed on EU stock exchanges. These are already subject to significant capital market disclosure requirements, which are likely to create synergies. As they will still have to refer to (now voluntary) sustainability reporting standards if a business partner needs the data for its sustainability statement (keywords here are 'trickle-down effect' and 'value chain cap'), data points already identified may have become irrelevant.
• The efforts made by companies with regard to the CSRD/CSDDD have not been in vain. Although the Omnibus Simplification provides for adjustments and refines the obligations for companies in detail, the reaffirmation of the CSRD and CSDDD by the European Commission makes it clear that sustainability regulations at the European level are no longer being dropped; rather, the Omnibus Simplification has clarified them in the interests of practical application. The obligations for companies remain and require careful preparation. 
• (Only for the CSDDD): The Omnibus Proposals on the CSDDD should be supported. The practical implementation of the CSDDD will be more tangible for companies and will allow for a more practical and legally secure implementation; this applies in particular to German companies. They will benefit from the adjustments as some of the proposed CSDDD regulations will now be even more closely aligned with the content of the LkSG.
   

With the kind assistance of Malte Eschenbrücher (intern) and Franka Förderer (student assistant).