The Commission’s proposal seeks to reshape EU Sustainability requirements by amending CSRD, CSDDD, EU Taxonomy, and CBAM.

By José María Alonso, Paul A. Davies, Fabrice Fages, Michael D. Green, Nicola Higgs, David Little, Cesare Milani, Axel Schiemann, James Bee, and Toon Dictus

On 26 February 2025, the European Commission (Commission) published its much-anticipated first Omnibus Package. This first Omnibus package regarding sustainability contains a set of legislative proposals designed to reduce administrative burdens by amending a range of existing EU sustainability frameworks (the Omnibus).

Specifically, the Omnibus proposes to amend the following regulatory frameworks:          

• the Corporate Sustainability Reporting Directive (CSRD) (see prior Latham article);
• the Corporate Sustainability Due Diligence Directive (CSDDD) (see prior Latham article);
• the EU Taxonomy (see prior Latham article); and
• the Carbon Adjustment Border Adjustment Mechanism (CBAM) (see prior Latham article).

The proposals set out in the Omnibus are a response to concerns that compliance obligations have become unwieldy for many companies, particularly smaller companies. As such, the Omnibus is said to align with the Commission’s Competitiveness Compass commitment to deliver at least a 25% reduction in administrative burdens, in line with the recommendations from the Draghi Report (see prior Latham article on the Competitiveness Compass).

Further, the Commission’s stated aim is to align the EU’s ambition for a sustainable transition with the enhancement of EU companies’ competitiveness. In this context, the Commission also announced its new Clean Industrial Deal on the same day as the Omnibus. The Clean Industrial Deal aims to connect climate and competitiveness under one overarching growth strategy.

For completeness, there are certain additional proposals concerning the InvestEU and EFSI Regulations (the so-called Omnibus II) that will not be addressed here.

1. The Omnibus Package

The Omnibus (not including Omnibus II) comprises:

• a proposed Directive to postpone (or “stop-the-clock”) in relation to: (i) CSRD reporting requirements for certain companies; and (ii) the transposition deadline and the initial application of CSDDD (the Stop the Clock Directive);
  
• a more detailed proposal containing amendments to the CSRD and CSDDD (the Detailed Directive);
  
• proposals to amend the Taxonomy Disclosures Delegated Act (DDA) and the Taxonomy Climate and Environmental Delegated Acts; and
  
• a proposal for a regulation amending CBAM.

We will consider the application of Omnibus to each of CSRD, CSDDD, the EU Taxonomy, and CBAM.

2. Amendments to the CSRD Framework

a. Timing

Under the CSRD as currently implemented, there are four waves of reporting:

Wave	Type of Undertaking	Current Implementation Date
Wave 1	Large undertakings that are public interest entities and have more than 500 employees	Financial years on or after 1 January 2024 (reporting from 2025)
Wave 2	A large undertaking or parent of large groups not in Wave 1 and that meets two of the following three criteria: (i) balance sheet total of €25 million; (ii) net turnover of €50 million; and (iii) an average number of 250 employees	Financial years on or after 1 January 2025 (reporting from 2026)
Wave 3	Small- and medium-sized entities (SMEs) listed on an EU regulated market that are not micro-undertakings	Financial years on or after 1 January 2026 (reporting from 2027)
Wave 4	A non-EU parent company, where that non-EU parent has generated a net turnover within the EU of €150 million for two consecutive financial years, and also either: (i) has an EU subsidiary that meets the thresholds under Article 19a of the CSRD (e.g., is a large undertaking or public interest entity); or (ii) has a branch in the EU that generated €40 million net turnover in the preceding financial year	Financial years on or after 1 January 2028 (reporting from 2029)

In relation to CSRD and under the Stop the Clock Directive, the Commission proposes to:

• postpone the CSRD’s application by two years for Wave 2 companies to financial years on or after 1 January 2027;
  
• postpone the CSRD’s application by two years for Wave 3 companies to financial years on or after 1 January 2028 (although the effect of the Detailed Directive — see below — will be to effectively remove Wave 3 from the scope of CSRD).

The objective of the proposed postponement is to avoid requiring certain companies to report for the financial year 2025 (Wave 2 companies) or 2026 (Wave 3 companies), when the proposals under the Detailed Directive are intended to relieve many of these companies from any reporting Directive. We also anticipate that this is a strategic move from the Commission in order to expedite the passing of the Stop the Clock Directive and, therefore, provide more certainty to the market in terms of timing.

Notably, the Stop the Clock Directive and the Omnibus more generally, does not contain any specific proposals regarding reporting for Wave 1 companies (notwithstanding that it is proposed certain Wave 1 companies will fall outside of the scope of CSRD pursuant to the Detailed Directive — see below). This will create significant uncertainty for Wave 1 companies that are due to report in 2025. Such Wave 1 companies may also face the additional uncertainty of an absence of transposition of CSRD in certain Member States.

b. Scope

Under the Detailed Directive, the Omnibus also proposes to remove approximately 80% of previously in-scope companies from the CSRD by introducing a 1,000-employee threshold for EU in-scope companies and groups. This is intended to broadly align the scope of the CSRD with the thresholds under the CSDDD.

Based on the proposed new applicability rules, the CSRD would apply to EU companies or EU parents of groups that have: (a) an average of more than 1,000 employees; and (b) either: (i) a turnover above €50 million; or (ii) a balance sheet total above €25 million. In the case of an EU parent, these tests continue to be applied on a consolidated basis. The CSRD would also continue to apply to public interest entities (current Wave 1), but only to the extent such entities exceed the average number of 1,000 employees (on a consolidated basis).

It is notable that this proposal under the Detailed Directive would have the following implications:

• Wave 1 – Remove from the CSRD’s scope certain companies that are currently subject to reporting under Wave 1 and that may currently be under an obligation to report under CSRD until the Detailed Directive is finalised and implemented in Member States.

• Wave 2 – Remove from the CSRD’s scope many of the companies that had already started preparing and incurring significant costs as part of Wave 2.

• Wave 3 – Effectively remove all companies from an obligation to report under CSRD who are in Wave 3.

Further, in relation to Wave 4, the Detailed Directive proposes to raise the threshold for non-EU groups, so that only groups with turnover in the EU above €450 million (currently set at €150 million) would be in scope of non-EU group reporting obligations in 2029. However, the Omnibus does not propose to introduce a 1,000-employee threshold for such non-EU companies, nor is there a proposal to postpone the obligations for such non-EU companies.

c. Sustainability Reporting Standards

In addition to the changes to the CSRD legislative framework under the Stop the Clock Directive and the Detailed Directive (so-called level 1 changes), the Commission also intends to revise and simplify the European Sustainability Reporting Standards (ESRS) (so-called level 2 changes).

The ESRS set out the specific requirements and data points that companies subject to CSRD need to report. As part of the Omnibus, the Commission announced that “as soon as possible” (and at the latest within six months of the entry into force of the Detailed Directive to simplify CSRD), it will adopt a delegated act to reduce the number of data points required for compliance and will clarify points that are currently unclear. Additionally, the Commission intends to provide further guidance on the double materiality assessment in the revised ESRS. Although these level 2 changes to the ESRS do not require approval from the EU Parliament and the Council (see below), these proposals do create further uncertainty around the position of companies under Wave 1 that have been preparing their CSRD reporting (and are expected to report imminently) based on the current ESRS.

The Omnibus also aims to remove the Commission’s ability to issue sector-specific standards, which would therefore result in the discontinuation any further sector-specific work by the European Financial Reporting Advisory Group (EFRAG), the Commission’s technical advisor. Under the current CSRD, the Commission is required to adopt sector-specific standards by 2026, but this proposed revision would mean that CSRD would remain a standardised and uniform reporting framework across all industries.

The Commission also proposes to adopt a reporting standard for voluntary use by means of a delegated act. This voluntary standard would be based on the voluntary standard for SMEs that was developed by EFRAG and published in December 2024. Under the Omnibus, the standard for voluntary use would then also serve as the “value chain cap” for information requests to companies with fewer than 1,000 employees (see below).

d. Other Key CSRD Concepts and Principles

Under the Omnibus and the Detailed Directive, the following CSRD concepts/principles were addressed as follows:

• Double Materiality – The double materiality principle is at the core of the CSRD and requires companies to report from both a financial materiality perspective and an impact perspective about the impacts of their activities on the environment, the community, or society. Early information leaks about the Omnibus suggested that the double materiality concept might be removed to preserve financial materiality only. However, the Commission’s Q&A, published alongside the Omnibus, expressly confirms that the principle is retained.
  
• Value Chain Cap – The Detailed Directive introduces a proposal of a new “value chain cap” concept, which is designed to limit the extent of information requests that CSRD reporting companies may impose on smaller companies within their supply chains. Specifically, companies subject to the CSRD will not be permitted to request data from undertakings with up to 1,000 employees beyond the disclosures provided for under the voluntary standards that are to be adopted by the Commission. This is subject to certain exceptions, such as information commonly shared within a sector.
  
• Assurance – Another key principle for CSRD reporting is that reported sustainability information must be subject to assurance by an independent third party. Under the current version of CSRD, sustainability reports need to subject to limited assurance, but the Commission is empowered to adopt standards requiring assurance based on a stricter “reasonable assurance” standard by 2028. The Omnibus and Detailed Directive now propose that: (a) such option to move to reasonable assurance is removed; and (b) limited assurance is maintained but based on guidelines that clarify the procedures that assurance providers must follow during their engagements.

3. Revisions to the CSDDD

a. Timing and Scope

The Omnibus further proposes changes to the CSDDD, the EU’s human rights and environmental due diligence law that was adopted by the EU in June 2024 and is due to apply from July 2027. Specifically, under the Stop the Clock Directive:

• The Commission proposes to delay the initial application of CSDDD by one year. Under the current CSDDD: (i) EU companies with more than 5,000 employees and more than €1.5 billion net worldwide turnover; and (ii) non-EU companies with more than €1.5 billion net turnover in the EU were due to be subject to CSDDD July 2027, and this will no longer be the case.
  
• As a result, a larger number of companies will start to comply with CSDDD starting on 26 July 2028 (being: (i) EU companies with more than 3,000 employees and more than €900 million net worldwide turnover; and (ii) non-EU companies with more than €900 million net turnover in the EU).
  
• The position remains unchanged for all remaining EU and non-EU companies under CSDDD, both in terms of scoping criteria and timing.

b. Due Diligence

Although the Omnibus proposes that CSDDD due diligence obligations continue to extend to upstream and downstream business partners, the most significant change proposed by the Detailed Directive is the confinement of the extent of these obligations. Whereas under the current CSDDD, diligence obligations extend to indirect business partners for a company’s entire “chain of activities”, diligence obligations would now be limited, in principle, to the company’s own operations and direct (tier 1) business partners. Companies would only be required to look beyond tier 1 if they possess “plausible information” that suggests an adverse impact on environmental or human rights matters beyond tier 1. This may, for instance, be the case where:

• the structure of the business relationship lacks economic rationale and suggests that it was adopted to remove an otherwise direct supplier with harmful activities from the purview of the company;
  
• where the company has received a complaint or is aware of credible NGO or media reports about harmful activities at the level of an indirect supplier or is aware of past incidents involving the supplier; or
  
• where the company, through its business partners, is aware of problems at a certain location (e.g., a conflict area).

The Omnibus does emphasise that a company should still ensure their code of conduct — which forms part of the required due diligence policy — is adhered to throughout the “chain of activities” (via contractual cascading and flow down requirements). As such, the CSDDD as amended by the Omnibus would align more closely with the approach taken under the German Supply Chain Act.

Other notable proposed changes related to due diligence obligations in the Omnibus include:

• the frequency of assessment of the effectiveness and adequacy of due diligence processes would be reduced from at least once per year to once every five years, unless there are significant changes in risk or circumstances;
  
• the obligation to end existing business relationships in instances of severe adverse human rights or environmental impact would be removed, but the obligation to suspend relationships in certain instances would be maintained;
  
• the obligations in relation to stakeholder engagements would be limited, including by narrowing the definition of stakeholders and requiring stakeholder engagement only when adverse impacts are identified and prevention or corrective action plans are being designed;
  
• there would be protections in place to limit the requests for information that companies under CSDDD would be able to address to smaller cap (adopting the same standards as the value chain cap under CSRD); and
  
• the obligation for the Commission to deliver a report to the EU Parliament and Council regarding the need for further due diligence requirements specific to regulated financial undertakings and their downstream activities (by July 2026) would be eliminated.

Finally, the Commission proposes to advance the adoption of due diligence guidelines to July 2026 (at the latest). Under the current CSDDD timetable, detailed guidance for companies on the due diligence process was to be adopted by January 2027. Based on the new proposed timeline, companies would have two years to prepare for compliance and develop human rights and environmental due diligence practices and processes based on the Commission’s guidelines.

c. Civil Liability and Penalties

The Detailed Directive also sets out a number of proposed changes to the CSDDD’s civil liability and penalties regime, which had received widespread attention. These changes include:

• Civil Liability – A proposal to eliminate the uniform EU-level civil liability, allowing Member States to maintain or adapt their own liability regimes. This change involves deleting the harmonised EU conditions for civil liability and revoking the express obligation for Member States to facilitate representative actions by trade unions or NGOs. Despite this decentralisation, Member States would still be required to ensure that victims of adverse impacts have effective access to justice and the right to an effective remedy. Furthermore, the requirement for Member States to ensure that liability rules are of overriding mandatory application in cases in which the applicable law is not the national law of a Member State would also be removed, although Member States may still provide that their national law provisions are of overriding mandatory application in accordance with existing EU regulations.
  
• Penalties – The Omnibus proposes to remove references to minimum caps on financial penalties, provided that penalties remain effective, proportionate, and dissuasive. While the CSDDD currently provides that maximum limit of penalties shall be not less than 5% of a company’s net worldwide turnover, this provision seemingly led to confusion, as it was sometimes misunderstood as a minimum fine amount. To clarify, the Commission proposes to delete this 5% reference, as well as the requirement for fines to be commensurate to the company’s net worldwide turnover. Instead, the Commission will develop fining guidelines in collaboration with Member States, ensuring penalties align with established factors and principles without imposing restrictive caps. This approach would be aimed at maintaining a level playing field across the EU by preventing Member States from setting caps that would undermine the effectiveness and dissuasiveness of fines.

d. Climate Transition Plans

The CSDDD will also introduce requirements in relation to the adoption of transition plans for climate change mitigation. The Detailed Directive proposes a nuanced change to the requirements for companies in scope of this obligation.  While the obligation to adopt such a plan remains, the language has been refined to replace the mandate to “put into effect” the plan with a requirement for the plan to include “implementing actions” that facilitate the transition to a sustainable economy. This adjustment is intended to align more closely with the CSRD transition plan, though the full implications of this change remain unclear.

4. Amendments to the EU Taxonomy

a. Application of the EU Taxonomy Regulation

Under the current regime, all companies in-scope of CSRD must report certain Taxonomy KPIs in accordance with the EU Taxonomy Regulation. The Omnibus introduces a proposal to make Taxonomy reporting voluntary for certain CSDR companies by creating an “opt-in” regime. Under this proposal, CSRD in-scope companies with a net turnover not exceeding €450 million will only be required to disclose Taxonomy information to the extent they claim their activities are aligned or partially aligned with the EU Taxonomy. In such case, there is a requirement to disclose their turnover and CapEx KPIs, with the option to disclose the OpEx KPI. This opt-in approach is intended to effectively eliminate the cost of compliance with EU Taxonomy reporting rules for these companies, unless such companies want to claim their activities qualify as environmentally sustainable under the EU Taxonomy.

b. Amendments to Delegated Acts

While the above amendments relate to level 1 changes to the EU Taxonomy, the Omnibus also includes proposals to amend the Taxonomy Disclosures Delegated Act (DDA) and the Taxonomy Climate and Environmental Delegated Acts. Proposed amendments include:

• simplified reporting templates, including a reduction of data points by nearly 70%;
  
• an exemption from assessing Taxonomy eligibility and alignment for economic activities that are not financially material (i.e., those not exceeding 10% of total turnover, CapEx, or OpEx);
  
• changes to the Green Asset Ratio (GAR) key performance indicators for credit institutions; and
  
• a simplification of the “Do No Significant Harm” (DNSH) criteria (based on two options presented by the Commission).

The draft Delegated Act that containing the amendment proposals relating to the DDA and the Climate and Environmental Delegated Act is subject to four-week public consultation period. The Commission will receive feedback until 26 March 2025.

5. Targeted CBAM Simplifications

As part of the Omnibus, the Commission further announced certain proposed changes to CBAM to reduce administrative burdens, particularly for SMEs and occasional importers.

Most notably, the Commission will propose a mass-based threshold of up to 50 tonnes per importer annually, below which CBAM obligations would not apply. This measure would be aimed at exempting around 90% of CBAM declarants while still covering more than 99% of associated emissions. Additionally, in relation to importers that remain in scope, the Commission proposes to:

• facilitate compliance with CBAM obligations, for example by simplifying the authorisation of declarants and the calculation of emissions; and
  
• introduce measures to make CBAM more effective, for example by strengthening anti-abuse rules and developing a joint anti-circumvention strategy with national authorities.

In terms of next steps, the Commission will conduct a full review of CBAM in 2025, including to assess its potential extension to other ETS sectors, downstream goods, and indirect emissions. The Commission will also examine how to help exporters of CBAM products at risk of carbon leakage. A legislative proposal is expected to follow in early 2026.

Next Steps

The legislative level 1 changes proposed as part of the Omnibus will now undergo the ordinary legislative process in the EU Parliament and Council. Both institutions can suggest amendments, which would result in potential trialogue negotiations with the Commission. Once an agreement is reached, the final texts need to be adopted by both Parliament and Council.

Following adoption, the amendments are published in the Official Journal of the European Union. For the amendments to Directives, such as CSRD and CSDDD, Member States will also need to transpose the amendments into their national laws to become effective. It is expected that the Stop the Clock Directive will be expedited (it is notable that the draft of the Stop the Clock Directive has a requirement for Member States to have transposed by 31 December 2025).

If adopted, the Omnibus amendments will reshape EU sustainability landscape by targeting only the largest companies and alleviating smaller companies from compliance burdens. Implementation will not be immediate, as the level 1 legislative process typically lasts several months and further details regarding level 2 changes such as the updated ESRS will require additional legal instruments.

Latham & Watkins will continue to monitor the developments in relation to the Omnibus and regulatory frameworks regarding sustainability.