The Omnibus Package: A Simplification of EU Legislation or a Step Backward in Achieving Climate Goals?

The Commission's Omnibus initiative, announced on 26 February 2025, aims to amend several pieces of legislation in the areas of sustainability due diligence and reporting, taxonomy and investment programmes. The first package of proposals (Omnibus I) covers, among others, the Corporate Sustainability Due Diligence Directive (CSDDD) and the Corporate Sustainability Reporting Directive (CSRD).

Omnibus I is intended to simplify sustainability requirements, reduce administrative burdens, in particular for SMEs, and generate significant savings. The Commission's proposals aim to promote investment and the competitiveness of the EU market while maintaining the EU's climate change commitments and green transition objectives.

Despite the Commission's statements, many observers, including academics, human rights and environmental organisations and businesses, have expressed concerns that the proposed changes would in fact reverse EU policy and dismantle the mechanisms for achieving the EU's sustainability goals.

Corporate Sustainability Due Diligence Directive

The CSDDD, which entered into force in July 2024, is intended to foster the sustainable growth of companies operating in the EU market. It requires businesses to take adequate measures to identify and address potential and actual adverse human rights and environmental impacts across their operations and global value chains. The companies in scope are also obliged to adopt and implement climate transition plans. The CSDDD is widely viewed as a breakthrough towards achieving the EU's Green Deal objectives through responsible corporate practices. The Omnibus draft legislative act seeks to amend the key principles of the CSDDD.

Reduction of the steps in the value chain that are subject to risk-based assessment

The existing mechanism requires companies to conduct due diligence throughout the entire value chain, including with respect to their subsidiaries and both direct and indirect business partners. This risk-based approach is designed to identify and prioritise impacts with the highest severity and likelihood, regardless of where in the value chain those impacts arise.

The proposed amendment would radically restrict the scope of companies' due diligence obligations by limiting the actors covered to direct contractors. The examination of the lower layers of the value chain would only be required if the company acquired 'plausible information' about potential or actual human rights or environmental harms.

Such a proposal therefore breaks with the commonly accepted risk-based approach and, in practice, would relieve companies of addressing salient abuses at the lower end of the supply chain. As noted by the Danish Institute for Human Rights, this would lead to a shift in the burden of identifying human rights and environmental risks to third parties, such as NGOs.

Moreover, the proposed amendment would prevent companies from performing an in-depth assessment down the value chain. The Omnibus amendment aims to limit the information that companies can request from small and mid-sized companies (up to 500 employees) to data points covered by the voluntary sustainability reporting standards (VSME), unless additional information is required, for example, to verify impacts not included in the VSME.

Restriction of available counter-measures

Under the current wording of the CSDDD, companies are obliged to cease cooperation with entities that pose a threat to the environment or human rights if material risks are identified. Termination of such relationships is a measure of last resort, to be applied when other methods and means of persuasion have proved ineffective. This would no longer be the case under the Omnibus proposal. Instead of discontinuing economic exchanges with the offending or high-risk suppliers, even in the case of serious adverse impacts, companies would only be required to suspend their business relations 'while continuing to work with the supplier towards a solution'. Such a reversal would result in turning a blind eye to significant environmental harm and abuse of fundamental rights, making the green transition to a sustainable economy an empty concept.

The lifting of the obligation to implement Climate Transition Plans

The CSDDD requires companies to adopt and put into effect climate change mitigation plans to curb their GHG emissions. However, the Omnibus legislation no longer requires the implementation of these plans. Thus, instead of combating the climate crisis, businesses would simply be producing more paperwork with little or no real impact on their environmental footprint. This would increase the uncertainty, leading to a regulatory gap, increased judicial intervention and further fragmentation of the EU legal framework.

"...the Omnibus legislation no longer requires the implementation of [climate change mitigation plans to curb their GHG emissions]...businesses would simply be producing more paperwork with little or no real impact on their environmental footprint."

  
Removal of the EU civil liability regime

The CSDDD provides for EU-wide civil liability rules for damage caused by a company's failure to comply with its due diligence obligations. This is no longer the case under the Omnibus proposal, which would leave companies' accountability subject to different national laws, with all the challenges that this might entail (such as divergent legal regimes, for instance, when dealing with international affairs and foreign entities). Stepping back from the harmonised framework would reintroduce uncertainty and complicate the process of bringing offending companies to justice, thus depriving victims of effective remedies. Seeking redress would be further hampered by the removal of the mandatory provision for representative mechanisms that enable human rights institutions, NGOs, or trade unions to act on behalf of the affected parties. On top of that, the Commission's proposal allows Member States to apply the law of the third country where the harm occurred, instead of providing for an overriding national mechanism, which could further weaken the protection of victims. These amendments would therefore dilute the liability of companies and, as a consequence, remove the measures for effective enforcement of the CSDDD obligations.

Limiting stakeholder engagement

The CSDDD envisages significant stakeholder involvement in the corporate due diligence process. However, under the proposed changes, only 'directly affected' stakeholders would be eligible to consult on the impacts of companies' operations, and their engagement would no longer be required in several stages of due diligence, including when disengaging from business relations or monitoring the adequacy of measures adopted. As a result, competent actors such as NGOs, consumer associations, and human rights institutions would be excluded from assessing the harms hidden behind complex supply chains. This not only risks lowering the level of protection but also reduces transparency and social participation in identifying and addressing serious threats to communities and the environment.

Reduced frequency of the monitoring exercises

A further dilution of the existing sustainability rules would result from the proposed reduction in the periodic assessment of companies' due diligence efforts. Instead of monitoring their effectiveness on an annual basis, companies would only have to review their policies every five years or whenever there are reasonable grounds to believe that the measures are no longer adequate or effective. Exempting businesses from a systematic and ongoing review of their due diligence measures goes against international standards and jeopardises the goal of mitigating adverse environmental and human rights impacts.

Reduced penalties

Under the CSDDD, Member States must introduce effective, proportionate and dissuasive penalties for breaches of due diligence requirements, including pecuniary penalties. Member States may set a maximum limit on the amount of such pecuniary penalties, but this limit cannot be less than 5% of the net worldwide turnover of the company. The Omnibus proposal removes this restriction, meaning States may set lower caps on penalties, which may hinder the process of holding businesses accountable for failure to address their negative impacts on the environment and human rights.

Deferred transposition and entry into force

The CSDDD was to be transposed by the Member States by July 2026 and to enter into force in July 2027 for the first wave of companies (large companies with a turnover of EUR 1.5 billion and 5,000 employees), and in July 2028 and 2029 for the second and third waves (i.e. companies with more than 3,000 employees and a turnover of EUR 900 million for the remaining undertakings). Under the Commission's proposal, the transposition deadline would be extended by one year (to July 2027) and the first group of companies would have to comply with the Directive from July 2028.

The proposed postponement does not seem justified in light of the considerable time allowed to implement the CSDDD requirements and the preparations and progress already made by the companies in scope. In turn, such a delay appears to run counter to the need to urgently tackle the climate crisis and to slow down the process of ending human rights abuses in supply chains.

Corporate Sustainability Reporting Directive

The CSRD, which came into force in January 2023, is designed to improve corporate sustainability reporting by providing investors with the information they need to identify and manage the ESG risks associated with companies' operations. It aims to ensure transparency towards stakeholders and to strengthen the accountability of companies in the pursuit of sustainability goals.

Narrowing the scope of reporting companies

Under the current provisions, the CSRD applies to large companies (above two of the following three thresholds: EUR 50 million net turnover, EUR 25 million balance sheet total, and 250 employees) and SMEs with securities listed on the EU-regulated market. The Omnibus proposal aims to drastically limit the scope of the Directive to large undertakings with more than 1000 employees in order to bring the CSRD and the CSDDD into closer alignment.

As a result, the number of entities subject to sustainability reporting obligations would be reduced by around 80%. Listed SMEs would be exempted from mandatory reporting and all out-of-scope undertakings (those with less than 1,000 employees) would only have to report if they wished to do so, according to a simplified standard to be adopted by the Commission, based on the voluntary standards for SMEs (VSME) developed by the European Financial Reporting Advisory Group. This would create a 'value-chain cap', limiting the information that reporting companies could request from their partners to that covered by the VSME.

The proposed changes have been criticised by financial institutions, which point out that they rely on comparable data sets to make sound credit risk assessments. Reducing available and reliable information undermines the purpose of the CSRD and would only increase the operational burden on businesses. Banks would be forced to make individual requests in order to properly analyse the environmental and human rights impacts of their investment decisions, which in turn could restrict access to sustainable finance.

As the Commission itself acknowledges, the proposed amendments may partially diminish the positive impacts of the CSRD on the protection of fundamental rights with regard to companies that would no longer be subject to reporting requirements. However, the Commission notes that the reduction of burdens on companies 'should lead to other societal gains in terms of wealth creation, employment and innovation, including innovation for sustainability'.

This reasoning is far from satisfactory, especially as it fails to explain how communities and the environment could benefit from the dismantling of the system created to protect their rights. In turn, it is worth noting that while some damage could be repaired, other harms are permanent and irreversible. Environmental harms and climate change are among the latter.

Revision of reporting standards

Undertakings covered by the CSRD should report in accordance with the European Sustainability Reporting Standards (ESRS), which have been adopted by delegated acts of the Commission. The first set of the ESRS includes principles applicable to all industries, while the sector-specific standards were to be adopted in 2026. Under the Omnibus proposal, the ESRS would be revised. The scope of mandatory information would be reduced, quantitative datapoints would be given priority over qualitative text, and there would be no sector-specific reporting standards. However, experts point out that qualitative reporting is key to understanding companies' impacts on human rights and the environment, while the sector reporting standards would have provided useful guidance for businesses to identify and focus on the issues most relevant in their industry. As a result, the intended reduction in ESRS data points could lead to a dilution of the sustainability reporting requirements.

Extended deadline for implementation

The CSRD requirements were to be phased in by undertakings according to their size and turnover. The first wave of EU companies (large public interest entities with more than 500 employees) was supposed to report for the first time in 2025, and the second (other large companies) and third (listed SMEs) in the following two years (2026 and 2027 respectively).

The Omnibus draft provides for a 2-year delay for wave 2 and 3 companies that were due to report in 2026 and 2027. This is to reflect the ultimate exclusion of these businesses from the scope of the reporting requirements under the Commission's proposal and to avoid costs that may later prove unnecessary.

Such a postponement, as well as the exemption of certain groups of companies from the CSRD, not only weakens the rules on responsible and sustainable growth, but also disregards the efforts and resources already invested by a number of companies in preparing for their reporting duties. Moreover, some observers note that rather than simplifying matters, such a delay would only create confusion about the obligations and timeframes to which companies are subject and further complicate their preparation efforts.

All in all ...

Given the scope of the proposed amendments, the Omnibus package is perceived as a major retreat from sustainability commitments, jeopardising the achievement of the EU's climate objectives. For this reason, many scholars, activists and experts from various organisations and economic sectors are calling on the European Parliament and the Council to stay the course and safeguard the progress made so far, with respect for human rights and the environment.

Author:

Maja Frontczak is a Counsel at Gessel Attorneys at Law in Warsaw. She specialises in arbitration and litigation and has experience in proceedings before EU institutions. She is the leader of the GESSEL for Climate project, which initiated the first citizen climate lawsuits in Poland aimed at determining the Polish state's liability for contributing to the climate crisis. She is a regular speaker at conferences and climate arbitration events and publishes on climate change litigation. She was also a member of the International Expert Group in the BIICL project on Global Perspectives on Corporate Climate Legal Tactics.