On 26 February 2025, the European Union (EU) introduced its Omnibus Proposal to simplify sustainability regulations including the Corporate Sustainability Reporting Directive (CSRD), to more proportionately balance the EU’s ambitions for a sustainable transition with the need to enhance EU business competitiveness and reduce administrative burdens. So, what does this mean for businesses navigating CSRD compliance? Here’s everything you need to know about how this impacts CSRD-compliant reporting.
What is the CSRD?
The CSRD is an EU directive introduced in 2023 designed to enhance the scope, quality and comparability of sustainability reporting for businesses operating in the EU and provide a more comprehensive view of business performance. The CSRD replaces the Non-Financial Reporting Directive (NFRD) to meet growing demands for transparency from shareholders.
Introduced as part of the European Green Deal, the CSRD requires in-scope companies to report against the European Sustainability Reporting Standards (ESRS), conduct a double materiality assessment (DMA), assess their impacts, risks and opportunities (IROs) and report on their material IROs. When first introduced, the CSRD brought significantly more companies into scope of mandatory EU sustainability reporting (around 50,000 companies). Those in scope included large EU corporations, EU parent companies of large groups, listed EU small and medium-sized enterprises (SMEs) and non-EU companies with a significant presence in the EU.
Why change the rules?
Many businesses, especially EU-listed SMEs, have found the reporting requirements too complex and expensive to implement. The European Commission recognises the need to strike a balance between its ambitions towards a sustainable transition and keeping EU businesses competitive. The Omnibus package includes amendments to the CSRD, the Corporate Sustainability Due Diligence Directive (CSDDD), the Carbon Border Adjustment Mechanism (CBAM), and the InvestEU Regulation, and is accompanied by a draft Taxonomy Delegated Act for public consultation. It aims to address overlapping, unnecessary or disproportionate rules while still ensuring the Green Deal’s targets are achieved in the most cost-effective manner. It aims to strengthen the EU’s competitiveness, make its economy more prosperous and foster a favourable business environment where companies are not stifled by excessive regulatory burdens.
How the Omnibus might impact CSRD-compliant sustainability reporting
The Omnibus proposes significant changes to the CSRD. Here are some of the key changes that could impact CSRD requirements if they’re approved:
More time to prepare
Reporting deadlines for the second and third wave of in-scope companies have been delayed for two years. This means that large EU companies or EU parent companies of large groups in wave two will now have until 2028 to start reporting, instead of 2026. Listed SMEs and small financial institutions in wave three will have even more time to prepare, with their deadline extended to 2029 versus the original 2027 target. This extra time gives businesses breathing room to set up the right systems, train their teams and integrate CSRD-compliant sustainability reporting processes smoothly into their operations.
Fewer companies affected
The proposal significantly reduces the number of companies required to comply. Businesses with fewer than 1,000 employees will no longer fall under CSRD reporting rules. If approved, these reforms would exempt up to 80% of currently affected companies from CSRD compliance. If the Omnibus proposal is approved in full, listed EU SMEs would be removed from mandatory scope, making the extended reporting deadline set out above obsolete. These changes particularly benefit medium-sized enterprises, family-owned businesses and growing companies, affording them the opportunity to pursue growth without navigating extensive red tape.
Simpler reporting
The proposed updates don’t just reconsider who needs to comply and by when; they are also simplifying the requirements for those still in scope. The Omnibus updates would result in the ESRS being scaled back to include fewer mandatory data points, meaning companies have less information to collect and disclose. These ESRS updates would include the removal of data points deemed least important for general purpose sustainability reporting; the prioritisation of quantitative datapoints over narrative text; and further distinguishing between mandatory and voluntary datapoints.
In addition to the streamlined ESRS, the planned sector-specific reporting standard, the first of which was due to be adopted by June 2026, will be scrapped. This removes the requirement for companies to disclose sustainability risks, impacts and opportunities that the European Commission deems as most relevant to specific sectors, instead putting the responsibility back on companies to deem what is most material to report via the sector-agnostic ESRS following their DMA.
The Omnibus suggests the introduction of a voluntary reporting standard based on the VSME standard for SMEs developed by EFRAG. The reduced scope proposed in the Omnibus also provides stronger protections for SMEs that are part of larger corporate supply chains, ensuring they aren’t unfairly burdened. This would be achieved through an enhanced value chain cap to limit trickle-down compliance burdens on SMEs, limiting the information that can be requested from entities that do not meet the new criteria.
Finally, the Omnibus proposal delays the reasonable assurance requirement under CSRD, keeping limited assurance as the standard for now. It extends the timeline for stricter audits, easing compliance burdens for companies while maintaining external verification of sustainability reports.
What this means for your business
It’s also important to note that these changes are still a proposal. They are yet to be reviewed, discussed and voted on by the European Parliament and Council of the European Union – the first of which is scheduled for 1 April, so watch this space. For now businesses should continue preparing as they have been, staying flexible for the final regulation.
Whether in scope or not, the CSRD has significantly raised the bar for what best practice sustainability reporting looks like. So, even for out-of-scope businesses, the rules of play have changed. The CSRD isn't just about meeting requirements – it’s an opportunity to enhance your business. While it might seem complex, pursuing CSRD compliance, or alignment for those out of scope, is a valuable opportunity to embed sustainability more deeply into your organisation, uncover opportunities for cross-company collaboration and bring previously unengaged stakeholders into conversations and decisions around environmental, social and governance (ESG). As a result, management of non-financial issues should move higher up the agenda and be given equal weight to financial performance and reporting – a win–win in our eyes.
Need help navigating the latest changes to the CSRD? Get in touch with us at info@flag.co.uk.
