By The GAIL Europe Knowledge Working Group

The European Commission’s proposed Omnibus Package, adopted on 26 February 2025, suggests large-scale changes to the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), the Taxonomy Regulation (Taxonomy) and the Carbon Border Adjustment Mechanism (CBAM).

In this article, GAIL Europe outlines the most important suggested changes to the CSRD and CSDDD, also touching on the Taxonomy and CBAM and assesses the impact of these changes on global sustainability.

1. Corporate Sustainability Reporting Directive (CSRD)

As we already reported in our piece “The EU Sustainability Regulatory Framework – Finding your Way Through the Maze”, theCSRD is a major instrument to achieve the objectives of the European Green Deal of 2019. It entered into force on 5 January 2023, increasing the number of companies required to report non-financial information from previously around 11,000 to approximately 50,000 companies. For further information as to initial scope, application phases and reporting obligations please see here.

Key Proposed Changes:

1. Delayed Application of the CSRD (and Taxonomy):
   
   The Omnibus Package proposes a two-year delay of the application of reporting requirements for the second wave (i.e. from 2026 to 2028 for large companies that are not public interest entities) and the third wave (i.e. from 2027 to 2029 for basically listed SMEs). According to the Commission, the objective of the postponement is to avoid requiring certain companies to report for financial year 2025 (second wave) or 2026 (third wave), just to then be subsequently exempt from the mandatory requirement to report (see below).
   
   By postponing the application of the reporting requirements for companies in the second and third waves, the proposal also postpones the date by when such companies must report indicators such turnover KPI (i.e. the proportion of a company’s net turnover derived from products or services associated with environmentally sustainable economic activities); capital Expenditure (CapEx) KPI (i.e. the proportion of investments in assets or processes related to environmentally sustainable economic activities, as well as operational Expenditure (OpEx) KPI (i.e. the proportion of direct, non-capitalized costs related to environmentally sustainable economic activities) under the Taxonomy Regulation.
2. Increased Reporting Thresholds and opt-in under Taxonomy for most companies: 
   
   Only companies with more than 1,000 employees or with more than a €50 million annual turnover (or a balance sheet above €25 million) should be subject to mandatory sustainability reporting. This is a substantial increase from the current threshold of 250 employees and a €40 million turnover, thus aligning the scope of the CSRD more closely with the CSDDD and reducing the application scope from around 50,000 companies to approximately 8,000 companies.
   
   The proposal also introduces an “opt-in” regime under the Taxonomy Regulation where large companies as per the above but with a net turnover that does not exceed €450 million shall only be obliged to report under the Taxonomy Regulation where and to the extent that they claim that their activities are aligned (or partially aligned) with the EU Taxonomy Regulation. In this case, they must disclose their turnover and CapEx KPIs and may choose to disclose their OpEx KPI.
3. Significantly reduced mandatory reporting information: The Commission intends to substantially reduce the number of mandatory datapoints under the European Sustainability Reporting Standards (ESRS) that were adopted by the Commission on suggestion the by European Financial Reporting Advisory Group (EFRAG) in July 2023. The requirement to adopt sector-specific ESRS standards by 2026 has also been removed. The concept of double materiality will, however, be kept intact, with the Commission promising to provide clearer instructions on how to apply the materiality principle. For companies not subject to mandatory sustainability reporting requirements (again, now the vast majority of companies), the Commission proposes a proportionate standard for voluntary use which would be based on the voluntary reporting standards for SMEs (VSME) developed by EFRAG.
4. No reasonable assurance: Under the proposal, and with the aim to reduce costs for reporting companies, the possibility of moving from a requirement for limited assurance to a requirement for reasonable assurance would be removed.
   
   
5. Corporate Sustainability Due Diligence Directive (CSDDD)
   
   Unlike these previous regulations within the EU’s Sustainable Finance Framework, the Corporate Sustainability Due Diligence Directive (CSDDD) focuses on ensuring that both certain EU and non-EU companies take appropriate action toward human rights and environment-related matters. For more information on its initial scope of application and due diligence obligations, please see our previous update here.

Key Proposed Changes:

1. Delayed Application: The Commission has adopted a proposal that would postpone by one year the transposition deadline from July 2026 to July 2027 and remove the first wave for the entry into application, moving the application deadline for wave 1 companies therefore from July 2027 to July 2028.  As a result, wave 1 and wave 2 companies will have to comply by July 2028, with wave 3 companies having to comply by July 2029.
2. Penalties and Liabilities: The EU will not impose a civil liability regime based on failure to comply with the CSDDD, thereby removing EU-wide harmonisation in this respect and basically leaving it to EU member states as to how to deal with related claims.
3. Scope Limitation and Frequency of Reporting: Many changes here too, for example: Human rights and environmental due diligence obligations should be limited to a company’s own operations and those of its subsidiaries and direct business partners (Tier 1 suppliers). Companies would only need to assess indirect partners if there is credible information suggesting potential adverse impacts.  They are also no longer required to terminate business relationships as a last resort. In addition, they can also only request sustainability data as specified in the VSME unless essential for risk mapping. Finally, companies must only update due diligence assessments every five years instead of annually, unless new risks emerge earlier.
4. Climate Transition Plans: While the requirement to draft climate transition plans remains, plans should focus on outlining implementing actions with no mandate to put them into effect.
   
   
5. Carbon Border Adjustment Mechanism (CBAM):

As part of the European Green Deal, the European Union introduced the Carbon Border Adjustment Mechanism (CBAM). CBAM is an environmental instrument that tackles carbon leakage by putting a carbon price on imports of CBAM goods. The CBAM applies to imports of certain goods and selected precursors: cement, iron and steel, aluminium, fertilisers, electricity and hydrogen. Under the CBAM, in-scope goods are only exempt if the intrinsic value of such goods does not exceed, per consignment, a value of currently EUR 150.

In summary, some of the main proposed changes include delayed application (CBAM will apply with financial consequences as from 2026, while the current transitional phase spans between 2023 and 2025) as well as increased compliance thresholds in that CBAM should apply only to companies importing more than 50 tonnes of goods per year, thereby exempting many SMEs and individual importers. This change will exempt approximately 90% of importers but leave over 99% of import-related emissions in-scope. On the other hand, the Commission proposes to enhance the self-declaration, surveillance and penalty mechanism in order to reduce potential abuses.

• Context and Implications:

The above-mentioned proposed changes emerge amid debates among EU member states regarding the balance between maintaining robust sustainability standards and alleviating regulatory pressures on businesses. However, it is questionable whether this balance is well struck as regards many of the proposed changes to the CSRD, Taxonomy and CSDDD; and whether it is a good idea to reduce (short-term) business pressures for the sake of mid- to long-term (and even current) global well-being:

In 2024, global temperatures reached unprecedented levels, with the World Meteorological Organization (WMO) confirming it as the warmest year on record. The global average temperature was approximately 1.55°C above pre-industrial levels, surpassing the previous record set in 2023. ​ The 1.5°C threshold, established by the Paris Agreement on Climate Change, represents a critical limit to mitigate severe climate impacts, such as accelerated glacier and sea ice loss, contributing to a rise in sea levels.

The Sustainable Development Goals (SDGs), adopted by all United Nations Member States in 2015, aim to address global challenges such as poverty, inequality, and environmental degradation by 2030. However, recent assessments indicate that progress is insufficient:​ The UN’s “Our Common Agenda” report highlights significant setbacks in achieving the SDGs and calls for accelerated action to realign with the 2030 targets. ​The 2025 Asia and the Pacific SDG Progress Report reveals that the region is not on track to achieve any of the 17 SDGs by 2030 and stresses the need for transformative actions to address these challenges. ​

The Europe Sustainable Development Report 2025 assesses 41 countries, including EU member states and the UK. While some countries show progress, significant disparities exist. ​Notably, the report demonstrates an overall lag in SDG progress across the EU, with the pace of SDG progress over the 2020-2023 period more than two times lower than the 2016-2019 period. The Report also highlights Europe’s continuing environmental and biodiversity challenges and significant negative spill-over effects into other regions of the world.

It has been argued for many years that the SDGs are largely an investment agenda notably into human capital (education, health, social protection, others) and physical infrastructure (renewable energy and grids, access to technology, others).

The European Green Deal, which forms the basis of EU sustainability regulations such as the CSRD, Taxonomy and CSDDD, was adopted by the EU following its commitment to the Paris Agreement and the SDGs.

It remains to be seen what changes will eventually flow into the EU sustainability framework as in particular the European Parliament, one of the EU’s co-legislators in charge of approving them, seems heavily divided.

We will keep you posted about any new significant developments.

In the meantime, let’s ensure to increase European and world-wide collaboration to achieve the sustainability goals that we have set ourselves, instead of being slowed down by budget pressures and political divides.

Our future depends on us.