The European Union (EU) has recently introduced the "Omnibus 1" package, a comprehensive initiative aimed at reducing administrative burden while maintaining the EU's commitment to sustainability goals. This package brings significant amendments to four key EU directives and mechanisms:

i. Corporate Sustainability Reporting Directive (CSRD): Establishes guidelines for companies to disclose their environmental and social impacts.​

ii. Corporate Sustainability Due Diligence Directive (CSDDD): Mandates companies to assess and address human rights and environmental risks within their supply chains.​

iii. Carbon Border Adjustment Mechanism (CBAM): Imposes tax on imported goods based on their carbon footprint.​

iv. EU Taxonomy Regulation: Provides a classification system for environmentally sustainable economic activities.

Let's delve into the specific changes proposed under each regulation to understand their implications for businesses and stakeholders.

Corporate Sustainability Reporting Directive (CSRD)

Background:

The CSRD, effective from January 5, 2023, mandates that companies disclose information about their environmental and social impacts, as well as how sustainability issues affect their financial performance—a concept known as double materiality.

It expands the existing sustainability reporting requirements set under the Non-Financial Reporting Directive (NFRD) by:

- Increasing the number of companies required to report.

- Enhancing the detail and scope of reporting (via a double materiality assessment).

- Ensuring that reported data is verifiable and comparable across industries.

CSRD Reporting Timeline:

1. First Phase (January 1, 2024): Large companies with over 500 employees already subject to the NFRD were required to start reporting for the 2024 fiscal year, with reports published in 2025.​

2. Second Phase (January 1, 2025): Other large companies meeting at least two of the following criteria: more than 250 employees, €40 million in turnover, or €20 million in total assets, were to begin reporting for the 2025 fiscal year, with reports published in 2026.​

3. Third Phase (January 1, 2026): Small and medium-sized enterprises (SMEs) listed on EU-regulated markets exceeding certain thresholds were to commence reporting for the 2026 fiscal year, with reports published in 2027.​

4. Fourth Phase (January 1, 2028): Non-EU companies with a net turnover exceeding €150 million in the EU and at least one subsidiary or branch in the EU were to start reporting.

CSRD: Current State and Proposed Changes

1) Reduced Scope – Fewer Companies Required to Report

Current State:

 i. All large companies (250+ employees) were set to report.

 ii. Non-EU companies with €150 million+ turnover in the EU were included in CSRD.

Proposed Change:

 i. The employee threshold increases from 250 to 1,000 employees.

ii. Non-EU companies' revenue threshold increases from €150 million to €450 million for reporting requirements.

iii. The branch-level threshold increases from €40 million to €50 million in revenue.

Impact: 80% of companies originally expected to comply will no longer need to report under CSRD.

2) Delayed Implementation

Current State:

 i. Second-phase (250+ employees) and third-phase (SMEs) reporting was to begin in 2025 and 2026, respectively.

Proposed Change:

 i.  The second-phase and third-phase reporting requirements are delayed by two years.

 ii. This means many companies will have more time to prepare before mandatory reporting begins.

Impact: Reduces pressure on businesses and prevents temporary compliance by companies that will no longer be required to report under the new thresholds.

3) Introduction of Voluntary Reporting Standards for SMEs

Current State:

 i. SMEs were mandated to comply with CSRD reporting requirements.

Proposed Change:

 i. SMEs that are no longer required to report can opt-in to a voluntary reporting framework based on the Voluntary Standard for Small and Medium-Sized Enterprises (VSME).

Impact: Allows SMEs to demonstrate sustainability commitment without mandatory compliance costs.

4) Simplification of Value Chain Reporting

Current State:

 i. Companies must gather data on the sustainability impact of their entire value chain, including suppliers and partners.

Proposed Change:

 i. The Omnibus 1 Package limits value-chain data requests to firms with 1,000+ employees.

 ii. Smaller firms will not be required to provide extensive value-chain disclosures.

Impact: Reduces excessive reporting burdens on smaller businesses.

5) Simplified Sustainability Reporting Standards 

Current State:

 i. The ESRS require companies to disclose both qualitative narratives and quantitative data.

Proposed Change:

  i. Fewer mandatory data points to reduce reporting complexity.

 ii. More focus on quantitative disclosures rather than qualitative narratives.

 iii. Clear distinction between mandatory and voluntary disclosures.

Impact: Companies can focus on essential sustainability metrics without unnecessary compliance burdens.

6) Exemption from Mandatory EU Taxonomy Reporting for Some Companies

Current State:

 i. Large firms must report turnover and capital expenditure KPIs related to EU Taxonomy alignment.

Proposed Change:

i. Companies with 1,000+ employees and revenue ≤ €450 million only need to report Taxonomy KPIs if they claim alignment.

ii. Operating Expenditure KPI disclosure becomes voluntary.

Impact: Lowers the reporting burden while maintaining alignment for companies voluntarily participating in EU Taxonomy.

7) Removal of Sector-Specific Disclosure Requirements

Current State:

 i. Companies must comply with sector-specific sustainability reporting standards.

Proposed Change:

i. Sector-specific standards will be eliminated.

ii. Companies can follow sector-agnostic standards instead.

Impact: Simplifies reporting and reduces customized compliance requirements.

8) External Assurance Guidelines to Be Issued by 2026

Current State:

i. Companies must obtain limited assurance (external verification) of sustainability reports.

ii. The EU Commission has the power to introduce reasonable assurance (stricter verification) by 2028.

Proposed Change:

i. The EU Commission will issue assurance guidelines by 2026.

ii. The power to impose reasonable assurance standards by 2028 is removed.

Impact: Ensures clarity on verification requirements while avoiding premature implementation of stricter assurance rules.

EU Taxonomy Regulation

Background:

The EU Taxonomy provides a classification system for determining which economic activities qualify as environmentally sustainable and considered crucial for investors, financial institutions and businesses seeking to align with the EU Green Deal while avoiding greenwashing.

EU Taxonomy: Current State and Proposed Changes

1. Reduced Reporting Scope – Fewer Companies Required to Report

Current State:

All large companies falling under the CSRD must report their alignment with the EU Taxonomy. This includes companies that exceed at least two of the following three criteria:

- €40 million in net turnover

- €20 million in total assets

- 250+ employees

Proposed Change:

  i. Companies with a net turnover of up to €450 million would be exempt from mandatory EU Taxonomy reporting. However, they would still have the option to report voluntarily.

Why this matters: This reduces the regulatory burden on mid-sized businesses while still allowing those that wish to showcase sustainability commitments to report voluntarily.

2. Voluntary Reporting for Partial Compliance

Current State:

 i. Companies are required to align with all criteria of the EU Taxonomy (substantial contribution, do no significant harm (DNSH) & minimum safeguards) before they can claim   compliance. There is no formal mechanism for companies that meet only some criteria to disclose their partial alignment.

Proposed Change:

 i. Companies will now be allowed to report partial compliance if they meet some but not all EU Taxonomy requirements.

Why this matters: This introduces flexibility, enabling businesses to demonstrate progress toward sustainability goals even if they have not yet fully aligned with the Taxonomy.

3. Simplified Reporting Requirements

Current State:

 i. Companies must report on a large number of data points, including financial and environmental performance indicators.

 ii. Even if certain activities are not financially significant, companies must still assess them under the Taxonomy framework.

Proposed Change:

 i. Fewer data points will be required, simplifying compliance and reducing administrative workload.

 ii. Companies will no longer be required to assess activities that are not financially significant.

Why this matters: The proposed changes allow flexibility, but companies that proactively align with the Taxonomy will attract sustainable investors and meet future regulatory expectations smoothly.

Corporate Sustainability Due Diligence Directive (CSDDD)

Background:

Adopted by EU in 2024, the CSDDD addresses and mitigate human rights and environmental risks in global value chains such as child labor, deforestation and pollution within their supply chains.

Who does CSDDD apply to?

Under the current directive, the CSDDD applies to:

- Large EU companies with 500+ employees and a turnover of €150M+.

- Non-EU companies with €150M+ turnover in the EU

These companies are required to assess and mitigate sustainability risks across their entire global supply chain—not just within their direct but also in their indirect (Tier 2 and beyond) suppliers.

CSDDD Compliance Timeline

i. 2024– The EU formally adopts the CSDDD and member states begin the process of incorporating it into national laws with a deadline of July 2026.

ii. 2026– The EU Commission will assess whether due diligence requirements should apply to financial institutions.

iii. 2027– Companies with 5,000+ employees and €1,500M+ turnover must comply.

iv. 2028– Companies with 3,000+ employees and €900M+ turnover must comply.

v. 2029– All remaining large companies must comply.

vi. 2030– The European Commission will review the implementation of the directive.

CSDDD: Current State and Proposed Changes

1. Extended Implementation Timeline

Current State:

 i. EU member states must adopt the CSDDD into national law by July 2026.

 ii The first wave of companies (those with 5,000+ employees and €1,500M+ turnover) must comply by 2027.

Proposed Change:

 i. The deadline for member states to implement CSDDD is extended to July 2027.

 ii. The first wave of companies (those with 5,000+ employees and €1,500M+ turnover) must comply by 2028.

Why this matters: This gives companies extra time to prepare, allowing them to develop stronger compliance mechanisms before enforcement begins.

2. Standardized Due Diligence Across the EU

Current State:

 i. EU member states have the flexibility to introduce stricter national due diligence requirements, leading to potential inconsistencies across jurisdictions.

Proposed Change:

 i. The Omnibus package introduces maximum harmonization, meaning all EU countries must apply the same due diligence rules.

ii. Member states will not be allowed to impose additional, stricter national requirements.

Why this matters: This ensures regulatory consistency across the EU, preventing compliance fragmentation and reducing uncertainty for multinational companies.

3. Due Diligence Limited to Direct Suppliers 

Current State:

- Companies must assess environmental and human rights risks across their entire value chain, including indirect suppliers.

Proposed Change:

 - Companies will only be required to conduct due diligence on their direct suppliers, unless there is clear evidence of risk further down the supply chain.

Why this matters: This significantly reduces the complexity of compliance, as businesses will not have to trace and monitor indirect suppliers unless explicitly necessary.

4. Simplified Stakeholder Engagement

Current State:

- Companies must engage with all affected stakeholders, including indirect and remote communities, as part of their due diligence obligations.

Proposed Change:

- The definition of ‘stakeholders’ will be narrowed to only those directly affected by the company’s activities.

- Engagement with indirect or remote stakeholders will no longer be mandatory.

Why this matters: This reduces administrative burdens and makes the stakeholder engagement process more focused and efficient.

5. Less Frequent Due Diligence Assessments

Current State:

 i. Companies must update their due diligence assessments annually to identify and mitigate risks.

Proposed Change:

 i. The requirement will be relaxed to once every five years, unless significant risks emerge in the interim.

Why this matters: This reduces repetitive reporting requirements, allowing businesses to focus on implementing meaningful due diligence rather than frequent documentation.

6. More Flexibility in Managing Non-Compliant Suppliers

Current State:

 i. Companies are required to terminate business relationships with suppliers who fail to comply with sustainability standards.

Proposed Change:

i. Instead of termination, companies will be allowed to suspend business relationships and give suppliers an opportunity to improve compliance.

Why this matters: This prevents supply chain disruptions and provides non-compliant suppliers a chance to align with sustainability requirements.

7. Removal of Minimum Financial Penalties

Current State:

 i. Companies found non-compliant face a mandatory minimum fine of 5% of their global turnover.

Proposed Change:

 i. The 5% minimum fine will be removed and each EU member state will determine its own penalty system based on national enforcement policies.

Why this matters: This prevents disproportionate penalties on businesses, allowing for more flexible and fair enforcement at the national level.

8. No Unified Civil Liability Rules

Current State:

i. A uniform EU-wide rule for civil liability is established under the CSDDD, meaning companies can be held legally accountable across all EU member states under the same framework.

Proposed Change:

i. The Omnibus 1 package removes the uniform civil liability rule, leaving it to individual EU member states to define their own legal frameworks for liability.

Why this matters: This provides greater legal clarity within national jurisdictions, but may lead to varying legal risks for companies operating in multiple EU countries.

9. Relaxed Climate Transition Plan Requirements

Current State:

   i.  Companies must develop and implement climate transition plans, ensuring they take concrete actions to align with the Paris Agreement goals.

Proposed Change:

  i. Companies will only be required to outline their planned actions, without a strict obligation to prove they are actively implementing them.

Why this matters: This reduces compliance pressure while keeping companies accountable for long-term climate goals without rigid enforcement.

10. Financial Sector Exempt from Future Review

Current State:

  i. The CSDDD includes a provision requiring the EU Commission to assess by 2026 whether financial services firms should be subjected to due diligence obligations.

Proposed Change:

 i. The Omnibus package removes this review, meaning financial institutions will remain exempt from CSDDD requirements indefinitely.

Why this matters: This ensures regulatory stability for banks, insurance firms and investment companies, allowing them to operate without additional due diligence requirements.

CBAM (Carbon Border Adjustment Mechanism)

Background:

What is CBAM?

CBAM is a carbon pricing system for imports introduced by the EU to create a level playing field between EU producers and foreign manufacturers.

The EU has some of the strictest environmental regulations in the world, particularly under its Emissions Trading System (EU ETS – European Union Emissions Trading System), which requires EU companies to pay for the carbon emissions they generate. However, companies outside the EU may operate under more lenient regulations, allowing them to produce goods with higher emissions at a lower cost and then sell them in the EU.

CBAM removes this unfair advantage by ensuring that imported goods face the same carbon costs as EU-manufactured goods.

The CBAM applies to imports of high-emission goods, including: Iron & steel, aluminum, cement, fertilizers, hydrogen and electricity.

CBAM Timeline:

1. Transitional Period (2023–2025): A Phase to Prepare

The CBAM is currently in a transitional phase that started on October 1, 2023 and will continue until December 31, 2025. During this period, companies importing CBAM-covered goods into the EU must:

Monitor and report greenhouse gas emissions embedded in their imports.

Submit quarterly CBAM reports (without any financial obligations).

Provide details on 

1) Total imported products for a given quarter.

2) Total direct and indirect CO₂ emissions from those products.

3) Carbon pricing already paid in the country of origin (if applicable).

2. Definitive Period (From January 1, 2026): Full Financial Obligations Begin

 Importers must purchase CBAM certificates to cover their embedded emissions.

 Annual CBAM reports must be submitted, detailing:

- Total imports.

- Total CO₂ emissions (direct and indirect) embedded in these products.

- Carbon price already paid in the exporting country (if applicable).

By 2030– CBAM will cover all products regulated under the EU ETS.

By 2034– The EU will fully eliminate free carbon allowances under the EU ETS, making CBAM the primary tool to ensure global carbon pricing fairness.

CBAM: Current State and Proposed Changes

1. Introduction of a New Exemption for Small Importers

Current State:

   i. At present, all importers, regardless of size, must report emissions during the transitional period and will have to purchase CBAM certificates once the definitive phase begins.

Proposed Change:

   i. Importers handling less than 50 tonnes of net mass per year will be exempt from CBAM obligations.

  ii. This means small businesses, SMEs and individual traders will not have to comply with CBAM requirements.

  iii. However, small importers must self-declare as “occasional CBAM importers” in customs declarations and ensure they do not exceed the limit annually.

Impact: Reduces the regulatory burden for small businesses while ensuring large-scale importers remain accountable.

2. Simplification Measures for Large Importers

Current State:

i. Under the existing CBAM framework, importers must:

ii. Go through a complex approval process before being recognized as CBAM declarants.

iii. Calculate and verify their emissions accurately, using either actual data or predefined default values.

iv. Report emissions annually, requiring extensive documentation.

Proposed Changes:

Streamlined CBAM Authorization Process

-    The process for recognizing CBAM declarants will be simplified.

- The mandatory consultation step will become optional, allowing companies to be approved faster.

Simplified Emission Calculations & Reporting

- Importers will now have more flexibility in how they report emissions:

- They can choose between actual emissions or default values, without requiring justification.

- If country-specific emissions data is missing, the EU will use the average emissions from the ten most carbon-intensive countries.

- Downstream emissions (emissions generated from further processing of aluminium and steel) will be excluded.

- If an EU-made precursor (an intermediate product) is already covered under EU ETS, it will be assigned zero emissions under CBAM.

Impact: These changes simplify compliance, reduce administrative costs and ensure businesses are not unfairly penalized.

3. Adjustments to CBAM’s Financial System

Current State:

i. Under CBAM’s current rules, importers must hold at least 80% of the required CBAM certificates in advance.

ii. This requirement places a significant financial burden on businesses, as they must pre-purchase a large number of certificates.

Proposed Changes:

i. The Omnibus 1 proposal reduces this requirement to 50%, lowering upfront costs.

ii.  In 2026 (CBAM’s first financial compliance year), importers will be allowed to buy certificates starting in February 2027, giving them extra time to gather data and make informed purchases.

iii.The EU may also introduce default carbon prices for non-EU countries, simplifying how importers deduct carbon costs already paid abroad.

Impact: These adjustments make CBAM less financially restrictive and allow businesses more time to adapt.

What This Means for Businesses

The Omnibus 1 Package is still a proposal, meaning its changes are not yet law. However, if adopted, it could:

-    Provide more time for compliance

-  Simplify supply chain due diligence

-  Ease reporting requirements

-  Lower financial penalties

Companies that go beyond compliance will be better positioned to attract investors, customers and long-term growth opportunities in the sustainable economy of the future.

References:

•  https://www.ibm.com/think/topics/csrd
  
  
• https://www.deloitte.com/uk/en/Industries/financial-services/blogs/what-is-the-european-corporate-sustainability-due-diligence-directive.html