EU Omnibus: New ESG implications for companies

Top three changes to the CSRD

• Restriction of the scope of application to large companies with more than 1,000 employees
• Postponement of the initial application date for companies not yet subject to reporting requirements (Wave 2 and Wave 3)
• Revision of Set 1 of the ESRS and no sector-specific reporting standards

Below we summarize the most important insights of the Omnibus package:

Adaptation of the scope

• Raising the threshold to large companies with more than 1,000 employees, i.e. companies with more than 1,000 employees and either more than EUR 50 million in turnover or at least EUR 25 million in total assets
• Raising the threshold to parent companies of a large group with an average of more than 1,000 employees on a consolidated basis
• New thresholds apply equally to capital market and non-capital market oriented companies
• New thresholds also apply to credit institutions and insurance companies
• Elimination of the reporting obligation for capital market-oriented SMEs (including elimination of the reporting standards provided for them (ESRS LSME))
• Raising the threshold for the reporting obligation of a branch of a third-country company to EUR 50 million in turnover (previously EUR 40 million in turnover)
• Raising the threshold for the reporting obligation of third-country companies to a turnover of EUR 450 million in the EU (previously EUR 150 million turnover)

Time of application

For companies that have been required to report under the previous CSRD since January 1, 2024 (Wave 1), nothing will change - provided they fall within the new scope of application. This means that they will remain required to report for 2025.

The date of initial application for large companies that fall within the new scope of application and that would not have been affected by the reporting obligation until 2025 or 2026 (Waves 2 and 3) is to be postponed by two years.

Adjustments to the European Sustainability Reporting Standards (ESRS)

The ESRS will be revised to significantly reduce the number of data points included, clarify unclear provisions and improve coherence with other legal acts. The revisions will:

• Omit data points that are considered least relevant for general sustainability reporting
• Prioritize quantitative data points over explanatory text
• Further differentiate between mandatory and voluntary data points
• Provide clearer guidelines for the application of double materiality

Furthermore, the proposal seeks to delete without replacement the Commission's power to adopt sector-specific ESRS.

Reporting on the Value Chain / Value Chain Cap

In order to reduce the reporting burden for companies that fall outside the scope of the CSRD, the Commission intends to adopt a voluntary reporting standard by means of a delegated regulation. This will be based on the voluntary standard for small and medium-sized enterprises (VSME ESRS) developed by EFRAG. This standard will limit the information that companies, banks and insurance companies that fall within the scope of the CSRD can request from companies in their value chains with fewer than 1,000 employees.

Reporting obligations on the EU Taxonomy

Nothing will change for companies in the new scope of application and with a turnover of more than EUR 450 million, i.e. they will continue to be required to report according to the EU Taxonomy.

For companies in the new scope of application and with a turnover of up to EUR 450 million, EU Taxonomy reporting will be voluntary. Relevant companies that voluntarily report that their activities comply or partially comply with the EU Taxonomy:

• Must disclose their sales and investment figures (CapEx)
• May choose to disclose their operating expense (OpEx) metrics

If relevant companies have made progress in achieving sustainability goals but only meet certain requirements of the EU Taxonomy, they should be given the opportunity to voluntarily report on their partial Taxonomy compliance.

In addition, the Commission intends to publish draft amendments to the Delegated Regulation on the nature and scope of environmentally sustainable economic activities (Article 8 of the EU Tax Regulation, Taxonomy Disclosures Delegated Act) and to the Delegated Regulation on climate and environment (Taxonomy Climate and Environmental Delegated Act) for consultation.

The following adjustments are planned:

• Simplifying reporting templates with the aim of reducing data points by almost 70%
• Introduction of materiality thresholds for triggering a reporting obligation
• Changes to key performance indicators of financial institutions, in particular the Green Asset Ratio (GAR) for banks

In addition, the simplification of the "Do No Significant Harm" criteria for the objective of "prevention and reduction of pollution" related to the use and presence of chemicals is being sought. The Commission will seek feedback on two possible options.

Format of reporting

The previous obligation to prepare reports in ESEF format will be changed. In future, only the disclosure and not the preparation must be in ESEF format, including electronic tagging. It is also made clear that these requirements can only be met once a delegated regulation has been adopted.

Audit

Instead of adopting auditing standards by 2026, as previously planned, the Commission is now to publish guidelines by 2026 in order to be able to address emerging issues in the area of auditing more quickly. The date by which the Commission will adopt auditing standards for limited assurance is thus left open.

The removal of the possible transition from a limited assurance audit to a reasonable assurance audit is intended to ensure that the costs of an audit do not increase in the future.

Major changes to the CSDDD

In addition to the changes to the CSRD and the EU Taxonomy, a number of changes to the CSDDD are also proposed:

• First application postponed by one year to 26 July 2028
• Supply chain due diligence obligations only for direct business partners or when information indicates likely or actual adverse impacts on business partners in the deeper supply chain
• Removal of the obligation to terminate business relationships as a "last resort"
• Limiting the term 'stakeholder' and restricting the phases of the due diligence process that require stakeholder involvement
• Extension of the due diligence monitoring interval to five years
• Clarification of the principles for fines
• Deletion of the review clause for financial services companies
• Removal of civil liability. However, Member States must ensure that victims are compensated

According to the European Commission's estimates, these changes would reduce the number of companies subject to CSRD by approximately 80%, significantly lowering administrative burdens while maintaining the EU's commitment to sustainability. The proposal aims to save around 6.3 billion euros in annual administrative costs and mobilize additional public and private investment capacity of 50 billion euros to support policy priorities.