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CSRD in Transition – How the Omnibus Packages Are Shaping the Future of Sustainability Reporting

published on 14 April 2025 | reading time approx. 8 minutes

Recent developments around the Omnibus packages I & II possibly altering the scope and contents of upcoming sustainability reports are creating legal uncertainty for companies. This article reviews the path that led to the current situation, explores European perspectives, and provides recommendations for companies on how to adjust their strategies moving forward.

Sustainability regulations are currently affecting most sectors and company sizes. This dynamic is primarily due to the "European Green Deal" 2020 initiative of the European Commission, which aims to achieve a 55% reduction in greenhouse gas emissions in the EU by 2030 and climate neutrality by 2050. Many regulations and initiatives were launched or updated since then, building on the Green Deal targets. The most notable ones are the Corporate Sustainability Reporting Directive (CSRD), EU-Taxonomy, Corporate Due Diligence Directive (CSDDD), Sustainable Finance Disclosure Regulation (SFDR) and the Carbon Border Adjustment Mechanism (CBAM).

In 2014 the Non-Financial Reporting Directive (NFRD) was implemented constituting the first framework to oblige European companies to mandatory non-financial reporting of ESG practices. The CSRD (2023) expands upon the scope, obligating 50,000 European companies and introduces a comprehensive range of ESG factors to disclose. It also includes a double materiality analysis and is closely intertwined with the EU-Taxonomy reporting.

In order to meet the CSRD threshold, 2/3 of the following size criteria must be fulfilled:

more than 250 employees on average annually
more than € 25 million total assets
more than € 50 million net revenue

The CSRD was adopted in 2022 and as a piece of European legislation, it was required to be transposed into national laws by July 2024. 18 EU member states were able to follow this directive, while others, like Germany, are delayed in the implementation process or have not begun it.

Most recently, the CSRD and other regulations like the CSDDD have been reopened and discussed in the European Parliament. This stems from the latest strategies for future EU competitiveness, derived from the Mario Draghi Report (September 2024), which offers a guide to rejuvenate the EU’s global economic standing. Following the same goal, the European Commission introduced the EU Competitive Compass at the end of January 2025 including, amongst others, the simplification of EU regulations to reduce bureaucratic hurdles – specifically reducing the administrative burden of SMEs by 35%. Less than a month after, the Omnibus packages I & II were released. The following provides a brief overview of the proposed changes to European sustainability regulations. For a more detailed review, please refer to Sustainability reporting: EU Commission publishes Omnibus draft to simplify reporting obligations | Rödl & Partner.

1. Limitation of the scope of the CSRD

The Omnibus draft proposes a significant reduction in the scope. It suggests that only companies with more than 1,000 employees and either annual revenue of at least €50 million or total assets of at least €25 million would be subject to the reporting obligation. This would align the CSRD scope more closely with that of the CSDDD. As a result, about 80% of the originally impacted companies, including many SMEs already preparing CSRD-compliant reports, would no longer be required to report.

2. Delay of the obligation to report

Regarding the deadlines for the first CSRD reports, the Commission has proposed a "Stop-the-clock" measure, which was already condoned by the EU Parliament on the 3rd of April 2025. This delays the reporting obligation for companies required to report starting in the 2025 fiscal year by two years (meaning the first report will be due in 2028 for the 2027 fiscal year). The postponement does not apply to companies in so-called “wave 1” (capital market-oriented companies with more than 500 employees) – they have to continue reporting for the 2025 financial year, as they already did for 2024.

3. Limitation of the scope of the EU-Taxonomy regulation

The Omnibus package II proposes for the EU-Taxonomy reporting to be voluntary for companies with fewer than 1,000 employees and less than €450 million in revenue. It further suggests:

<1,000 employees and <€450 million in revenue: Taxonomy reporting is voluntary.
>1,000 employees and <€450 million in revenue: Taxonomy reporting is voluntary; if reported, the revenue and CapEx KPIs must be disclosed, but the OpEx KPI is optional.
>1,000 employees and >€450 million in revenue: Mandatory disclosure of all taxonomy metrics, with the exclusion of the OpEx KPI only allowed if taxonomy-eligible revenues are less than 25% of total revenue.

The Omnibus package II also proposes simplifications in gathering taxonomy data, such as introducing materiality thresholds. Companies would only need to assess activities that are financially significant for their business model, with those representing less than 10% of relevant metrics considered "non-material" and exempt from further analysis.

4. Reduction of reporting obligations for SMEs

Capital market-oriented SMEs would no longer fall under the CSRD’s scope. Additionally, large companies would no longer be allowed to request sustainability information beyond the voluntarily applicable ESRS for SMEs (VSME standards), unless specific additional information is required for valid reasons. This aims to mitigate the "trickle-down effect," where smaller companies along the value chain are increasingly subjected to reporting requirements originally intended for larger firms.

The VSME standards, already adopted by the European Financial Reporting Advisory Group (EFRAG), will serve as the basis for the EU Commission to create a proportional standard for non-reporting companies through a delegated act.

5. Limitation of due diligence obligations to direct business partners and removal of civil liability

The EU plans significant simplifications regarding due diligence obligations, primarily imposed by the CSDDD, but also required under the CSRD. Unlike previously planned, the analysis of sustainability risks would primarily focus on direct business partners (Tier 1 suppliers) and no longer require covering the entire value chain. Expanded due diligence for indirect partners would only apply if there are credible signs of risks or negative impacts (e.g., reports from media or NGOs). The frequency of mandatory reviews of due diligence measures’ effectiveness would be reduced from annually to every five years.

The draft also proposes removing the EU-wide civil liability and the requirement for a climate transition plan, with companies only required to create the plan without the obligation to implement immediate actions. To reduce bureaucracy, the start date for the application of the CSDDD would be postponed by one year to July 26, 2028.

6. Removal of the obligation to introduce sector-specific standards and simplification of existing standards

Under the CSRD, sector-specific ESRS were initially scheduled to be adopted by June 30, 2026 (originally June 30, 2024), in addition to the first set of ESRS published in 2023. However, the Omnibus draft proposes removing the obligation to introduce sector-specific standards from the CSRD to avoid further increasing the data points required for companies.

The first set of ESRS, which took effect in 2023 and must be fully applied by CSRD-reporting companies, will be analyzed for potential simplifications. The goal is to simplify and streamline the ESRS by significantly reducing data points, removing less essential ones, prioritizing quantitative data over narrative text, and further distinguishing between mandatory and voluntary data points.

7. Changes in the audit of sustainability reports

The Omnibus draft proposes to change their approach, with the Commission issuing targeted guidelines for auditing by 2026. This approach allows the Commission to address emerging issues more quickly, potentially reducing unnecessary burdens on reporting companies. The option to transition from limited to reasonable assurance will be removed, with the aim of preventing rising audit costs and providing companies with greater planning certainty.

8. Limitation of the scope for companies with parent companies in third countries

Under the CSRD, parent companies with revenues exceeding €150 million in the EU, or with a subsidiary in the EU that is subject to the CSRD, were initially required to submit detailed sustainability reports according to their own ESRS for non-EU companies ("Non-EU ESRS") starting in the 2028 fiscal year. The proposed draft now suggests adjusting the scope to include only companies with EU revenues of at least €450 million.

How are European actors reacting to the Omnibus packages?

The political parties in the EU Parliament agree about the delay of the reporting obligations by up to two years. However, they are divided on the other Omnibus amendments. The center-right party EPP seeks further regulatory changes on top of the already proposed adjustments. Right wing parties are asking for a complete removal of reporting obligations. The center-left party S&D is calling the Omnibus packages a form of deregulation instead of simplification. Left and green parties are also backing the CSRD in its original state.

Financial Institutions are in favor of simplification, but not fond of the reduction of scope. The use of one specific, broadly adopted reporting framework enhances internal and external transparency about climate chance risks and therefore expedites the allocation of investments and mitigates the likelihood of hidden climate risks.

Legal advisors for European companies are advising their clients to focus on their stakeholders' expectations regarding sustainability reporting. On the basis of this, companies should decide which reporting activities to advance, maintain, scale back and cut altogether.

Environmental NGOs are taking a critical stance against the omnibus packages. They claim that the omnibus packages are actually a deregulation attempt under the pretext of simplifying reporting standards. NGOs are emphasizing that it is creating legal uncertainty and rewarding latecomers while they are disadvantaging early movers of the CSRD.

Companies are asking for a dialogue to ensure that revised regulations are both fully aligned with business realities and the sustainable development of the EU.

Courses of action

It is important to highlight again, that the omnibus packages are as of today (04.04.2025) not implemented. Therefore, it is crucial to remain responsive to upcoming shifts in regulation. Companies should first compare their size markers to the newly proposed thresholds for CSRD and EU-Taxonomy to see if they would still be obliged to report if the proposal is implemented.

For companies that continue to fall under the CSRD, it is advisable to maintain their current CSRD reporting efforts, even with the changes introduced by the Omnibus packages. Many companies have already invested significant time and resources into building their sustainability reporting frameworks, and abandoning these efforts could lead to increased costs and inefficiencies in the long term. We recommend continuing the CSRD project with a more flexible timeline, taking advantage of the extended reporting deadlines.

Furthermore, we suggest that companies select a reporting standard in the years leading up to FY 2027. This can involve using the CSRD itself, the VSME standard, or a combination of both. By establishing data streams, implementing IT solutions, and developing a robust reporting structure now, companies can ensure that they are well-prepared with an auditable, streamlined reporting system by the mandatory reporting year of FY 2027. The goal should be to create a reporting system that not only meets current standards but is also adaptable to future regulations.

For companies that no longer fall within the CSRD scope, particularly those that have already begun implementing CSRD standards, the shift to the VSME standard can be seamless. The efforts already made towards CSRD compliance can be leveraged and adapted to the VSME framework. For example, the CSRD materiality analysis can be transferred directly, and the topics covered by the ESRS can be mapped to corresponding VSME topics.

Even though the CSRD may no longer apply, it is still valuable for companies to adopt a voluntary reporting standard like VSME. This ensures that they can present credible, consistent data to key stakeholders such as suppliers, financial institutions, and other interested parties.

In addition, many companies already have sustainability practices in place that can be easily incorporated into a VSME report. The VSME standard is an ideal way to document and present these practices, as it helps companies maintain transparency while still providing flexibility in terms of reporting effort. The structured reporting format offered by VSME is particularly useful in identifying and mitigating climate risks, as it ensures companies have a clear understanding of their sustainability challenges. VSME offers two modules with varying levels of granularity, allowing companies to choose the approach that best fits their resources and needs.

General recommendations

It is essential to maintain open communication with stakeholders to align with their expectations, whether companies are staying within the CSRD scope or transitioning to VSME.
Companies should also leverage previous efforts, repurposing data and processes to avoid starting from scratch.
Monitoring how peers report on sustainability can provide valuable insights and help companies adopt best practices.
The extended timeline presents a unique opportunity to refine and strengthen sustainability processes, and companies should take full advantage of this time for improvement.
Setting realistic timelines is important to ensure gradual progress in sustainability reporting.
Insights derived from the materiality analysis should be applied in the business strategy and implemented through actions, policies, and targets.

Regardless of the path you choose, Rödl & Partner is here to support you through consulting or auditing for various sustainability standards. We will accompany you on your individual journey.