The EU Omnibus: What the Proposals Mean for Sustainability Reporting Among Companies and Investors

Key Insights: 

• Companies with over 1,000 employees and more than EUR 450 million in turnover (USD 473 million) will continue to report on their EU Taxonomy key performance indicators (KPIs). Companies below this threshold will not fall in scope of mandatory taxonomy reporting.

• The scope of companies reporting on CSRD will be reduced by 80% and a “stop-the-clock” measure will postpone reporting for companies that are due to report in 2025 and 2026. A more reduced and streamlined standard will be developed.

• The CSDDD will see changes to its civil liability rules, penalties, and due diligence revisions interval. Only direct business partners are, in principle, within scope for due diligence.

The EU’s sustainable finance agenda is rapidly evolving, with key regulatory developments reshaping corporate reporting and  investor obligations. On February 26, 2025, following weeks of speculation and leaks, the EU Commission published the omnibus packages of proposals on sustainability and investment simplification.¹

These are proposals to amend the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD) and the EU Taxonomy Regulation.² The European Commission first announced this proposal in November following the Draghi report and in response to the call in the Budapest Declaration to reduce reporting burdens on businesses.³ The proposals aim to simplify sustainability reporting and due diligence requirements and clarify the application of existing rules.

The Proposals and Their Impacts 

The European Commissioner for Trade, Valdis Dombrovskis, was clear in his remarks that the current sustainable finance legislative package hampers the EU’s objectives – adapting, innovating and competing globally in a changing geopolitical landscape. He said, “Put simply, we cannot hope or expect to successfully compete in a perilous world with one hand behind our backs.”⁴ The proposals are therefore ambitious and far-reaching in their intent to simplify and reduce compliance burdens.

Impacts on the EU Taxonomy

Despite rumors, the proposals do not include making taxonomy reporting completely voluntary. Companies with over 1,000 employees and more than EUR 450 million in turnover (USD 473 million) will continue to report on their taxonomy key performance indicators (KPIs). However, reporting for companies below that threshold will not fall in scope of mandatory reporting. 

The reporting templates for both financial and non-financial companies will be significantly simplified and reduced, as will the ‘do no significant harm’ requirements. A materiality threshold will be introduced, and operating expense reporting requirements limited. Importantly, companies can report partial alignment for activities that meet some, but not all of, the taxonomy’s technical screening criteria. This will provide helpful information on companies’ progress in terms of their climate transition. And it will help steer capital to where it’s needed the most, to achieve EU net zero targets.

These simplification measures should be widely welcomed by companies, as the current reporting requirements are complex. Nonetheless, the significant scope reduction puts the usefulness of the taxonomy, as a tool to drive investment decisions and to compare sustainability levels between companies, at risk.

Ultimately, what remains of taxonomy reporting will depend on what the changes to the Sustainable Finance Disclosure Regulation (SFDR) look like. If green and sustainable funds continue to be required for reporting on taxonomy alignment, this will maintain the incentive for investee companies to disclose their taxonomy numbers in order to access sustainable financing. Results of this review are expected in Q4 of 2025.

Impacts on the CSRD

For the CSRD, a “stop-the-clock” measure and a fast-track political process are proposed. This postpones the application of all reporting requirements in the CSRD for companies that are due to report in 2026 and 2027 (so-called wave 2 and 3 companies).⁵ The postponement will allow legislators to further develop the standards and requirements. 

A very drastic scope reduction is also proposed, removing about 80% of companies⁶ from the disclosure obligations. Descoped companies may still report on CSRD because they make a strategic decision to do so. And some may report as a result of being part of the supply chain of a company in scope. 

The European Sustainability Reporting Standards (ESRS) will be revised and simplified.

For smaller companies and for voluntary reporting, a streamlined and significantly reduced standard will be developed. Also, value-chain reporting is capped, preventing larger companies from imposing excessive information demands on smaller companies.

Sector standards will no longer be pursued. This could have been an avenue to simplify and tailor reporting requirements for specific sectors, however this was clearly seen as adding to the burden. 

Assurance requirements will be reduced to avoid an increase of cost.

Overall, the scope reduction and the streamlining of the standard will significantly reduce the availability of standardized and assured ESG data.

Impacts on the CSDDD

Due diligence obligations will primarily apply to direct business partners, reducing the burden of assessing entire supply chains. Indirect business partners only require assessment when there is plausible evidence of risk. Civil liability provisions will be revised, eliminating EU-wide civil liability rules, while maintaining national-level legal frameworks.

The adoption of climate transition plans will be aligned with CSRD.

It will no longer be mandatory to terminate a business relationship when issues are uncovered during due diligence, and the interval with which the effectiveness of due diligence processes needs to be assessed goes from one to five years. The first wave of CSDDD requirements begins in 2028 rather than in 2027.

In all, the changes to the CSDDD further dial down corporate obligations that were already significantly reduced during the final negotiations last year.

What This Means for Investors

Under these proposals, a number of financial market participants will fall out of scope of the EU Taxonomy, CSRD and CSDDD requirements. This substantially lowers their reporting burden, although those who have already started work on these important files may be indirectly penalized by the changes due to the negation of previous work in progress.

The scope reduction also indicates that the availability of ESG data to investors in support of their strategic and investment decisions will be more limited than originally envisioned. Particularly for those still in scope, it means a heavier reliance on third-party data providers and others to obtain necessary data.

Regardless, European investors will continue to consider and demand sustainability information from investee companies, as this is widely recognized as both good business practice and a fundamental part of their fiduciary duty. More than two thirds (67%) of the asset owners we surveyed believe ESG has become “more” or “much more” material in the past five years.⁷

What This Means for Companies

If the European Commission succeeds in fast-tracking the stop-the-clock measures around CSRD, this removes uncertainty for companies that were due to start reporting next year or the year after. The focus then shifts to how quickly a new reporting standard is developed and how much time companies have to prepare for their disclosures.

For small and medium-size enterprises, the measures will reduce their reporting burden and limit the requests from value chain companies to supply ESG data. For larger companies that have already reported on CSRD, or already invested significant time and resources to be able to do so, the changes may be painful.

What’s Next on the Horizon

The changes to the EU Taxonomy will be made in the so-called level 2 text by amending the Delegated Acts, following a four-week consultation period. It will take effect after the scrutiny period by the parliament and council, which the EU Commission hopes will conclude before year end, to provide preparers of taxonomy reports with clarity within an appropriate timeframe.

The omnibus is structured as an EU Directive that needs to be transposed and implemented by EU Member States. It will undergo standard legislative procedure, needing approval by the European Parliament and the Council of the European Union. The measures proposed are quite substantial and require reopening the level 1 texts of the directives themselves, so it is still to be determined whether they will pass the negotiations as is, or whether changes will be made. The Commission called on co-legislators to agree to fast-track this process, in particular in relation to the CSRD and to the CSDDD transposition timelines.

The timeline for this process is unknown and depends on whether the proposals receive support from EU Member States. Once finalized, EU Member States that have already transposed the CSRD and the CSDDD will need to amend their implementations. EU Member States that have not yet implemented these directives will need to reflect these changes in their eventual implementation. 

Until then, it is business as usual.

If you have questions or need help navigating the EU regulatory requirements with confidence, contact us to learn more about Morningstar Sustainalytics’ solutions. We stay on top of these rapid developments to help provide regulatory perspective, insights, and resources for our clients.

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References

1. European Commission. 2025. Commission simplifies rules on sustainability and EU investments, delivering over €6 billion in administrative relief. February 26, 2025.  https://finance.ec.europa.eu/publications/commission-simplifies-rules-sustainability-and-eu-investments-delivering-over-eu6-billion_en
2. As recently published proposals in the early stages of the EU legislative process, their content may be subject to additional amendments and changes not covered at the time of this article’s publication.
3. European Commission. 2025. An EU Compass to regain competitiveness and secure sustainable prosperity. January 28, 2025. https://ec.europa.eu/commission/presscorner/detail/en/ip_25_339
4. European Commission. 2025. Remarks by Commissioner Dombrovskis at the press conference presenting Omnibus proposals to simplify EU rules. https://ec.europa.eu/commission/presscorner/detail/en/statement_25_629
5. Ibid.
6. Ibid.
7. Morningstar Indexes. 2024. Voice of the Asset Owner Survey 2024 Quantitative Analysis. https://indexes.morningstar.com/insights/analysis/blt435a08d683d95490/voice-of-the-asset-owner-survey-2024-quantitative-analysis.