The keenly awaited details of the EU’s proposed first omnibus package were published on 26 February 2025. The package includes amendments to the Corporate Sustainability Reporting Directive (CSRD) (including revision and simplification of the existing European Sustainability Reporting Standards (ESRS)), the Corporate Sustainability Due Diligence Directive (CSDDD), the Carbon Adjustment Mechanism, and the InvestEU Regulation. The package is accompanied by draft amendments to Taxonomy Delegated Acts for public consultation. Whilst the package provides a set of pragmatic and proportionate proposals that will ultimately enable companies to more effectively embrace the transition to a sustainable economy, at its heart is the aim to boost EU competitiveness by cutting administrative burden. Overall, we think those working in private funds will broadly welcome the proposals, which reduce compliance regulations (and for CSDDD, confirm the extent that financial services are caught ). However, there is likely to be continued debate among European co-legislators, so uncertainty about final agreement and timing is likely to continue for the next few months at least.
In this alert, we give an overview of the changes with the most impact on those working in private funds, in particular relating to the CSRD and CSDDD. The key changes are:
- Postponement of some of the CSRD reporting requirements, the CSDDD transposition deadline, and application of certain provisions (the ‘stop the clock’ proposals)
- Simplified requirements and assessments (including limiting trickle-down obligations to small companies not within scope)
- Making more companies exempt
The package does not cover the Sustainable Finance Disclosure Regulation (SFDR), so any specific changes to sustainability reporting and disclosures directly related to private funds are still awaited (with the anticipated outcome of the SFDR level 1 review expected in Q4 2025).
The European Commission (the Commission) invites ‘rapid agreement’ by the co-legislators, in particular in relation to the ‘stop the clock’ proposals postponing certain disclosure requirements under the CSRD and the transposition deadline under CSDDD, so as to provide legal clarity to those undertakings currently due to report for the first time in 2026 for the 2025 financial year. The Commission expects the Omnibus I package to be agreed to and implemented by 31 December 2025.
Background
Following criticism by Mario Draghi (former president of the European Central Bank) in his 2024 report ‘The future of European competitiveness: A competitiveness strategy for Europe,’ Commission President Ursula von der Leyen announced in November 2024 that the Commission would look at an Omnibus package to cut red tape and eliminate overlaps and contradictions in sustainability reporting whilst maintaining its high standards. She also confirmed at Davos the launching of a ‘far-reaching simplification of our sustainable finance and due diligence rules’ and referred to a single and simple framework across the EU dealing with corporate law, insolvency, labour law, and taxation. This was confirmed in the Commission’s Competitiveness Compass (published 29 January), which set out a target of cutting the administrative burden by at least 25% for firms and by at least 35% for SMEs. The Omnibus packages themselves were announced in the Commission’s 11 February work programme.
CSRD
The CSRD is one of the core pillars of the EU’s sustainable finance framework, alongside the SFDR and the EU Taxonomy. Its purpose is for companies to report on their sustainability risks and impacts, as well as their percentage alignment (current and future revenues) from Taxonomy-aligned activities. This information is then passed on to end users, financial market participants and advisers. Financial market participants will then in turn use reported data under the CSRD to satisfy their own reporting obligations under the SFDR.
The CSRD came into force in January 2023 and applies on a phased basis. Member states were due to transpose the CSRD by 6 July 2024, but not all have done so (those who have not yet implemented include Luxembourg, Germany, and the Netherlands). As well as information on financial materiality, companies in scope are required to report on the social and environmental risks they face and the impact their activities have on people and the environment.
The CSRD also requires the Commission to adopt sector-specific reporting standards, with a first set of such standards due to be adopted by June 2026.
| Main change under Omnibus I |
Comments/Impact on funds |
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Postponement of reporting requirements A two-year postponement of the entry into application of the reporting requirements for large companies that have not yet started implementing the CSRD and for listed SMEs (Waves 2 and 31) in order to give co-legislators time to agree to the Commission’s proposed substantive changes |
There is no change to third-country reporting in 2029 (but see below on proposed threshold changes to those in scope, which include third country undertakings). This would automatically postpone Taxonomy reporting for those in scope of CSRD. |
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Reduction in the scope of reporting companies A new threshold test would apply for reporting requirements to large EU undertakings (listed or non-listed) with more than 1,000 employees. This is to be applied in addition to the existing tests: either (i) a balance sheet >€25 million; or (ii) net turnover >€50 million. Changes to the threshold for third-country companies/groups: to be defined as those that derived net turnover of >€450 million (was €150 million) in the EU for each of the past two consecutive financial years and have a subsidiary that is either a ‘large EU company/group’ or a listed SME, or that has a large EU branch (that generated a net turnover in the EU of >€50 million (up from >€40 million)). Importantly, reference to the 1,000-employee threshold is not relevant to these criteria. |
The Commission estimates that this will reduce the number of companies in scope by 80%. It more closely aligns the CSRD key thresholds with CSDDD. Although funds themselves are not in scope of the CSRD, other investment vehicles (e.g., non-AIF segregated accounts, co-investment schemes, holding companies, SPVs, GPs, LPs) may be. However, the new 1,000-employee threshold test (increased from 250) is likely to result in many structures no longer being in scope on a stand-alone basis (i.e., unless consolidated). As drafted, non-EU parent undertakings may now be in scope where they have fewer than 1,000 employees, where EU undertakings are not. This may be reviewed during the legislative process. |
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A ‘value chain cap’ and voluntary reporting standards For companies which will not be in the scope of the CSRD anymore (those with up to 1,000 employees), the Commission will adopt by delegated act a voluntary reporting standard, based on the standard for SMEs (VSME) developed by the European Financial Reporting Advisory Group (EFRAG). That standard will act as a shield, by limiting the information (other than that commonly shared between undertakings in the sector concerned) that companies or banks falling into the scope of the CSRD can request from companies in their value chains with fewer than 1,000 employees. |
The ‘value chain’ concept means that an undertaking must include information on material impacts, risks, and opportunities arising through its direct and indirect business relationships in its upstream (e.g., suppliers) and downstream (e.g., customers, distributors) value chain. This change would simplify the value chain reporting that funds are subject to. There is no proposed change to the three-year grace period for value chain reporting. |
| Dilution of assurance requirements for the Commission |
The proposals include a requirement for the Commission to adopt limited (instead of reasonable) assurance, an indeterminate period of time for it to adopt assurance standards and instead to adopt targeted assurance guidelines by 2026. |
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Deletion of sector-specific reporting standards and revision and simplification of the existing European Sustainability Reporting Standards (ESRS) This is proposed to be achieved within six months of the amending directive entering into force. |
As well as revision of the ESRS, the Commission propose to remove the financial-sector-specific reporting standards, by substantially reducing the number of data points, clarifying provisions deemed unclear, and improving consistency with other pieces of legislation. Note there is no change to the double-materiality dimension of the CSRD (reporting on ‘impact’ and ‘financial’ materiality). Those in scope will therefore still need to allow sufficient time to consider double-materiality assessments and have policies and procedures in place for the collection and analysis of robust data. |
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A derogation for companies with more than 1,000 employees and a turnover below €450 million to make Taxonomy reporting voluntary and to introduce the option of partial Taxonomy alignment See also the separate proposal (summarised below) on reform to the Taxonomy Delegated Acts. |
This introduces more flexibility for those in scope of CSRD reporting requirements in Article 8 of the Taxonomy Regulation (including that nonfinancial undertakings can exclude reporting on operating expenditures). Note there are no amendments to the Taxonomy Regulation itself under Omnibus I. |
CSDDD
The CSDDD came into force on 25 July 2024, and member states currently have a two-year implementation period (to 26 July 2026). The CSDDD introduces new and substantive obligations, distinct from other sustainability reporting requirements, that start to apply from mid-2027 and that will require risk-based due diligence to identify and address environmental and human rights actual and potential adverse impacts, and that necessitate meaningful stakeholder engagement. The thresholds for in-scope companies has changed over the legislative journey, and the number of companies in scope has already been dramatically reduced.
| Main change under Omnibus I |
Comments/Impact on funds |
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Giving member states and companies more time to prepare for implementing the new framework by: (i) Postponing the transposition deadline from 26 July 2026 to 26 July 2027 |
Regulated financial undertakings (such as AIFMs) that meet the thresholds are in scope, although only the upstream part of their chain of activities is caught. In the meantime, the necessary guidelines by the Commission will be brought forward to July 2026, allowing companies to continue building on best practices and reduce their reliance on legal/other advice. There is no delay for those in scope from July 2028/2029.3 |
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Simplification of various aspects of the sustainability due diligence requirements This includes narrowing the requirement for full due diligence beyond direct business partners (so this applies only where the company has plausible information suggesting that adverse impacts have arisen or may arise) and removing the obligation to terminate the business relationship as a last-resort measure. Member states will also be prevented from gold-plating these requirements. |
Those in scope will welcome this simplification and a level playing field across the EU on the core due diligence obligations. Due diligence assessments would also be reduced so as to occur at least every five years (instead of annually). In addition, see below about the removal of a possible introduction of downstream due diligence requirements for financial undertakings. |
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Reducing the trickle-down effect further Limiting the information that companies within scope may request from their SME and small- to midcap business partners (i.e., companies with not more than 500 employees) to the information specified in the VSME standard under the CSRD (subject to certain conditions around mapping). |
This limitation applies unless reporting companies need additional information to carry out mapping (for instance, on impacts not covered by the standards) and they cannot obtain that information in any other reasonable way. Codes of conduct must still be followed through the value chain by contractual provisions. |
| Deleting the review clause on inclusion of financial services in scope |
AIFMs/regulated financial undertakings will continue to be only partially in scope, regarding the upstream part of their chain of activities (and this would not be subject to change on the three-year review). |
| Alignment of the requirements of the adoption of transition plans for climate mitigation with those imposed by the CSRD |
Although there are no extra requirements for companies subject to the CSRD, an alignment is to be welcomed. |
| Removal of the provision for penalties to be based on net worldwide turnover (and not less than 5%) and removal of uniform rules on civil liability |
The Commission will instead be setting guidelines for penalties for member state regulators to impose. It will also be up to member states to define civil liability provisions. |
Amendments to Taxonomy Disclosures
Proposed amendments to the Taxonomy Disclosures Delegated Act and the Taxonomy Climate and Environmental Delegated Acts include the following:
- Simplifying the reporting templates (leading to a reduction of data points by almost 70%)
- Introducing a materiality threshold to make disclosure of alignment not mandatory for companies with less than 10% eligible activities (this includes for asset managers where less than 10% of their assets under management report under the EU Taxonomy)
- Introducing the option of reporting partial disclosure “to foster transition finance, simplify and make more useful the Green Asset Ratio (GAR) used by banks”
- Reducing the scope for mandatory reporting on operational expenditures and simplifying certain ‘Do no significant harm’ (DNSH) criteria
Conclusion
The EU is walking a tightrope between lifting onerous burdens in this area to remain competitive and still requiring entities to demonstrate that they are being sustainable. There may be some disquiet from those who have already implemented the requirements; who may seek to instead embrace the opportunity to be a market leader in this field and take advantage of their preparation for effective and proactive future reporting.
Non-EU undertakings with significant subsidiaries in Europe will need to monitor the outcome of these proposals and member state implementation, as well as determine the extent to which the changes impact on their groups and potentially in-scope subsidiaries, including taking steps to be ready to conduct double-materiality assessments and value chain reporting.
[1] Broadly, this relates to companies currently due to report: (i) in 2026, being large EU companies/groups that satisfy two of: (a) a balance sheet of €25 million, (b) net turnover of €50 million, or (c) average of 250 employees in the financial year; and (ii) in 2027, being listed SMEs that are not micro-undertakings.
[2] This will impact the following entities currently subject to CSDDD requirements from 26 July 2027: (i) EU companies with more than 5,000 employees and a net worldwide turnover of €1.5 billion (or ultimate parent companies of such a group); and (ii) non-EU companies with a net EU turnover of €1.5 billion (or ultimate parent companies of such a group).
[3] This is: (i) from 26 July 2028 – to: (a) EU companies with more than 3,000 employees and a net worldwide turnover of more than €900 million; and (b) non-EU companies with a net turnover of more than €900 million in the EU; and (ii) from 26 July 2029 – to all other companies within the scope of the directive (companies with more than 1,000 employees and a net worldwide turnover of €450 million).
This informational piece, which may be considered advertising under the ethical rules of certain jurisdictions, is provided on the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin or its lawyers. Prior results do not guarantee similar outcomes.
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