On February 26th, the European Commission released its Omnibus proposal to streamline a collection of EU Green Deal regulations—the CSRD, the CSDDD, CBAM, and the EU Taxonomy—in an effort to reduce the regulatory burden on businesses working toward sustainability goals.
The proposals are not the final amendments to the rules; they are a first step in a longer process of negotiation and approval among the EU’s institutions. While the final amendments are being determined, companies are still subject to the current version of the CSRD. But with the proposals published, they can begin to think through potential changes.
This guide breaks down the Omnibus proposal, focusing on the Corporate Sustainability Reporting Directive (CSRD).
Overview of the EU Omnibus proposal
The Commission’s proposal:
- Changes CSRD thresholds to focus on larger enterprises and make reporting voluntary for smaller companies
- Simplifies the CSRD’s technical reporting standards, to focus on quantitative disclosures
- Proposes a two year reporting delay for companies in wave 2 and beyond, so that companies have time to adapt to the new rules
What is the CSRD?
Under the EU's Corporate Sustainability Reporting Directive (CSRD), companies around the world are required to report on climate and other ESG data—to disclose the impact of their activities on people and the environment. The first wave of in scope companies are reporting this year, with companies in the second wave reporting in 2026.
How would the Omnibus proposal change the CSRD?
The Omnibus proposal would change CSRD thresholds to focus on larger enterprises and make reporting voluntary for smaller companies: The CSRD would apply to companies incorporated in Europe with more than 1000 employees, and either a turnover above EUR 50 million or a balance sheet total above EUR 25 million, as well as parent companies of European groups that meet these thresholds. This would remove many smaller companies from scope that are currently set to report in 2026 on their 2025 fiscal year (the second wave of reporters), as well as some companies that are currently in the first wave of reporting. In practice, many of the companies set to report in 2026 are the European subsidiaries of internationally headquartered companies -- these international entities may now have fewer subsidiaries that are in scope, or may be carved out altogether.
Smaller EU companies below the new thresholds would be carved out, resulting in an 80% overall reduction in the number of companies in-scope.
The Commission has also proposed raising the separate threshold at which non-EU-based companies doing business in the EU will be required to report about their full operation (i.e. not just about their European subsidiaries). These reports are currently scheduled to start in 2029 (wave 4). These companies must generate, in the EU, at the group level, a net turnover of at least EUR 450 million and have at least one large EU subsidiary (those exceeding two out of three of: balance sheet of 25 million euros and/or turnover of 50 million and/or 250 employees) or an EU branch that generates a net turnover of 50 million euros.
For companies that are no longer in the scope of the CSRD, the Commission proposes to adopt a new voluntary reporting standard, which has not yet been introduced. And, to protect smaller firms not subject to the CSRD from data requests by larger companies that are in scope, larger firms would only be able to request data from companies in their value chain if that data is included in the new voluntary reporting standard, or is “commonly shared” by companies in their sector.
The Omnibus proposes to simplify the CSRD’s technical reporting standards, to focus on quantitative disclosures: As part of the Omnibus, the Commission announced that it will also review and propose changes to the detailed reporting requirements set out in the European Sustainability Reporting Standards (ESRS). The details will be a in a separate proposal document, yet to be published, but the Commission’s goals for ESRS simplification are clear - to remove datapoints which are least useful for general purpose sustainability reporting, to prioritize quantitative datapoints over narrative text, and to maintain datapoints that overlap with other reporting standards. The retained climate data points will likely include those from the ISSB’s global reporting standard, and those from other EU regulations. The Commission has a goal of adopting the new ESRS no later than six months after the revised CSRD is agreed upon.
The Omnibus proposes a two year reporting delay for companies in wave 2 and beyond, so that companies have time to adapt to the new rules: That would mean firms currently in the second wave would report in 2028, on data from their 2027 financial year. Deadlines for firms currently in the first wave of reporting would remain the same, although under the new proposal, some of those firms may eventually be scoped out of CSRD. Until there is a final agreement on the proposal for a delay, current reporting deadlines remain in place for all companies.
The Omnibus proposal retains the requirement for a double materiality assessment: The process by which companies determine the topics that are material to their business and thus must be disclosed in their CSRD report.
The Omnibus proposal scraps the plan for more stringent reasonable assurance requirements from 2028: Instead, assurance of disclosures will continue to remain at the limited assurance level.
The Omnibus proposal removes the CSRD’s forthcoming sector-specific reporting standards: The sector specific reporting standards would no longer be developed and introduced.
What happens next?
The proposed amendments to the CSRD and CSDDD are broken into two separate proposal documents, one amending the respective reporting deadlines in the Directives, and the second amending the substantive details of the Directives, such as which companies fall within their scope.
Both the proposals on timing and substance will now enter a negotiation process between the various EU institutions, who will collectively agree upon final changes. The Commission’s intention is to secure agreement on the proposal to delay reporting deadlines first, and then to agree the changes in the proposal on substance. However, these proposals could take some time to negotiate, meaning companies may not know the precise impact on their reporting for months.
Some key takeaways for corporate sustainability leaders:
- The CSRD remains in effect, and Wave 1 reporters must still report this year. For the firms reporting this year, things aren’t changing immediately. Execute on those CSRD reports.
- Focus on no-regrets work. While it’s helpful to have the proposals, companies will face uncertainty over the coming months as negotiations take place between the EU institutions. There will be changes to these proposals, and until they are finalized, companies should think about what constitutes their no-regrets work on CSRD—for example, emissions reporting that will remain in the CSRD, or that they may also need in order to satisfy other requirements, such as ISSB—, and press on.
- Climate disclosure is the common core. The Omnibus affirms assurance-grade climate disclosure for large companies. While there will be changes to detailed reporting standards, it’s clear from all sides in the EU that the common core of quantitative climate disclosures that also forms part of other regimes around the globe, is here to stay. That’s work that companies can progress with confidence.
- Think beyond the CSRD. More broadly, much of the CSRD preparation work companies have undertaken is not wasted, even as the CSRD’s scope is in flux. Understanding your sustainability data and risks underpins your work to decarbonize and hit your climate and financial targets.
Next steps for corporate climate leaders:
- Get your climate data in order. Most large companies will need to have comprehensive, reliable sustainability data ready to disclose.
- Get up to speed on the current proposals. You can read the full proposals here, follow along via the Watershed blog and newsletter, and attend a live webinar on Tuesday, March 4, for a deeper look at the Commission’s proposals.
- Understand your exposure to other reporting frameworks. Beyond the EU, a growing number of countries have begun to adopt sustainability reporting standards defined by the International Sustainability Standards Board (ISSB). Request a meeting with a Watershed expert to get a check-up on your regulatory exposure.
- Get in touch. Watershed’s team of sustainability and policy experts are here to help you navigate what’s next. Reach out to your account team or request a demo to learn more about how Watershed can help you prepare.
Proposed changes to the Corporate Sustainability Due Diligence Directive (CSDDD)
The CSDDD has seen the most substantive proposed changes. The Commission proposes moving up their own deadline for adopting general due diligence guidelines to mid-2026. In parallel, they propose delaying initial compliance by one year, to July 26, 2028—effectively providing companies with two full years to build the guidance into their processes. However, the proposal keeps the original planned start dates for the second and third waves (2028 and 2029, respectively).
The proposal retains the requirement for companies to adopt a climate transition plan. However, it proposes improved alignment with the CSRD by removing the requirement to place the plan into effect.
The version of the CSDDD currently in law requires companies to assess actual and potential adverse human rights and environmental impacts in their upstream value chain, as well as portions of their downstream value chain. The proposals simplify this by limiting the assessment to tier 1 suppliers (“direct business partners”); and indirect partners where the company has plausible information to suggest adverse impacts may be relevant at that level.
There are a number of additional changes, including greater harmonization between member states, requirements on stakeholder engagement, as well as the need to to include certain contractual assurances with tier 1 suppliers. Amongst the biggest of these proposed changes is the lessening of the rules around penalties: fines would not need to be commensurate with turnover, and the mandatory maximum penalty level has been removed.
Proposed changes to the EU Taxonomy
The Omnibus proposal also includes notable changes to EU Taxonomy reporting, particularly by raising the threshold for which companies must comply. Under the proposed amendments, only in-scope EU companies or corporate groups with a net turnover exceeding 450 million euros would be required to disclose taxonomy-related data. Smaller companies that remain in scope under the CSRD would only need to report select financial indicators—such as the share of revenue from sustainable activities—if they claim their activities are aligned or partially aligned to the EU Taxonomy.
The European Commission has launched a consultation on proposed amendments, aiming to simplify disclosure requirements for both financial and non-financial companies. The proposal includes reducing reporting templates by up to 70% and exemptions based on financial materiality thresholds. For example, companies can omit taxonomy assessments for business activities that make up less than 10% of the KPI denominators. The Green Asset Ratio (GAR) is also proposed to be aligned to the CSRD scope, such that financial institutions will be able to exclude from their GAR calculation exposures linked to companies that are no longer in the revised CSRD scope. Additionally, as a first step in revising the Do No Significant Harm (DNSH) criteria, the Commission is introducing simplifications for pollution prevention and control rules related to chemical use, which will apply across all economic sectors under the EU Taxonomy.
Stakeholders can provide feedback on the consultation until March 26, with final adoption expected by mid-2025.
Proposed changes to the Carbon Border Adjustment Mechanism (CBAM)
The proposed amendments to the Carbon Border Adjustment Mechanism (CBAM) are primarily aimed at exempting small importers bringing in less than 50 metric tons annually. This is expected to remove 90% of importers from CBAM obligations, while keeping 99% of emissions within the mechanism’s scope. Beyond exemptions, the proposal also reduces the administrative burden, with measures such as simplifying emissions calculations, easing reporting requirements, and streamlining authorization of CBAM declarants.
To strengthen its effectiveness, the EU Commission plans to introduce stricter anti-circumvention rules, working with national authorities to prevent loopholes and abuse. Later this year, a full review will assess whether to extend to other emissions trading scheme (ETS) sectors, downstream goods, and indirect emissions. Based on the review, a legislative proposal is expected in early 2026.
