Simplification Omnibus: What you need to know and where to go from here

The highly anticipated ‘Simplification Omnibus Package’ has now been published by the European Commission. This is the first of three omnibus proposals. It aims to streamline sustainability regulations in the European Union (EU) and is a response to growing pressure for simpler sustainability reporting obligations. European Commission President Ursula von der Leyen emphasised that the Omnibus Package is part of an effort to cut red tape and simplify regulations to improve business competitiveness while maintaining sustainability standards.

The Simplification Omnibus proposal affects three key EU regulations: the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CS3D) and the EU Taxonomy. While the proposed amendments are more extensive than expected, they still retain key pillars of the regulation such as the double materiality requirement in the CSRD.

We outline the key changes the Simplification Omnibus brings to the three regulations, as well as our recommended actions that companies in scope should continue to take to meet regulatory requirements while the proposal is finalised.

The proposed updates: simplification, not deregulation

The key proposed changes include, but are not limited to:

CSRD

• Reporting deadlines: Delay reporting for second- and third-wave companies currently in scope for CSRD reporting and originally expected to report in 2026 or 2027 until 2028.

• In-scope entities: Align the scope of the regulation to that of CS3D meaning that mandatory reporting will only apply to companies with over 1,000 employees and either a turnover of over €50 million or a balance sheet above €25 million, representing a reduction of the number of in scope companies by c. 80%. For companies not subject to mandatory reporting, the Commission intends to publish simplified standards for voluntary use.

• Value chain: Limit the information that companies falling into the scope of the CSRD can request from companies in their value chains with fewer than 1,000 employees.

• ESRS disclosures: The Commission and European Financial Reporting Advisory Group (EFRAG) have also expressed intentions to simplify and reduce the number of datapoints required under CSRD by revising and simplifying the existing European Sustainability Reporting Standards (ESRS)¹ and suspending the expected sector-specific standards.

• Many other elements of CSRD are kept in place, including the need to gain limited assurance, however the requirement for moving towards reasonable assurance has been removed.

CS3D

• Reporting deadlines: Delay the first phase of the requirements, which apply to the largest companies, by a year to 2028, while advancing the guidelines by a year to 2026 to allow companies more time to prepare.

• Supplier requirements: Reduce the requirement for due diligence to only direct suppliers, and the frequency at which they must be monitored, from annually to once every five years. The Omnibus also proposes removing the duty to terminate business relationships as a last resort, and limiting both the notion of ‘stakeholder’ and the amount of information large companies can request from smaller companies in their value chain.

• Civil liability: Remove the EU civil liability provisions to defer to national civil liability regimes.

• Transition plans: Align the requirements on the adoption of transition plans with the CSRD.

EU Taxonomy

• Scope: Limit the regulation to the largest companies which are subject to the CS3D reporting, while allowing other large companies in scope for future CSRD reporting to report voluntarily.

• Data points: Reduce the amount of information companies must report by introducing a financial materiality threshold and simplifying the reporting templates, resulting in an almost 70% reduction in data points.

• Do no significant harm (DNSH): Simplify the criteria for pollution prevention and control related to the use and presence of chemicals which apply to all economic sectors. This is the first step in an effort to revise and simplify all DNSH criteria.

Capabilities companies should continue to prioritise

Although these proposed changes are notable and will affect some of the activities underway or currently being prepared for, we recommend companies in scope should continue developing key "no-regrets" capabilities, as described below. These capabilities not only support sustainability disclosures but also enhance risk management and impact and opportunity identification.  

1. Climate change

   Companies in scope for CSRD need to continue to conduct a double materiality assessment. Double materiality assessments need to be prioritised given the effort and time required to conduct them, meet limited assurance requirements and integrate more widely across the business. Most companies are expected to find the topic of climate change to be material. Under topic E1—climate change—of the ESRS which companies report against for CSRD, firms need to understand how climate change related impacts, risks, and opportunities materialise across their business. To do this, they must have a clear view of which risks they are exposed to by conducting scenario analysis and assessing both physical and transition risks. 

   Another key aspect of managing climate risks is establishing transition plans, the adoption of which remain a requirement under both CSRD and CS3D. Transition plans include greenhouse gas (GHG) emissions calculations and targets, which offer a clear, quantifiable goal and serve as a benchmark for comparison for investors.

2. Data management, processes and controls

   To be able to report against the ESRS requirements and produce metrics that support decision-making, companies must effectively manage their sustainability-related data. They therefore require a reliable framework and data infrastructure that allows for scalability so that ESRS datapoints can be methodically gathered, calculated, stored and applied. 

   As a first step, companies must assess their existing processes for data collection and establish a clear view of data ownership across the organisation. As sustainability-related data is cross-functional, it may be owned by multiple teams. The uniformity and traceability of data is key to ensure it is auditable, as the Omnibus proposes that the limited assurance requirements remain under CSRD. 

   With this, companies can update their policies and procedures to integrate sustainability factors into organisational decision-making. As the quality of sustainability data remains a common challenge, companies need to consider the use of external sustainability data providers to enhance data accuracy and coverage. This can magnify the usefulness of the data for decision-making and future reporting purposes.

3. Integration of sustainability considerations into the business model

   To meet the requirements under ESRS 2 (general disclosure requirements which are mandatory for all companies in scope for CSRD), companies must ensure that sustainability is integrated across their organisation and strategy. This requires the uplift of the operating model to ensure the establishment of clear roles and responsibilities on sustainability and related data across the business. It also includes the integration of sustainability within performance and risk management which can be achieved by, for example, inclusion of sustainability goals and progress within key performance indicators and internal reporting. 

   Companies must also consider supplier relationships as part of their strategy. Although the Omnibus has reduced the requirements relating to suppliers under the CS3D, due diligence remains mandatory for direct suppliers.

4. Risk and compliance management

   To be able to effectively manage sustainability-related impacts, risks and opportunities—and ensure compliance with all relevant requirements—companies must embed sustainability risk into their oversight functions. 

   Compliance, risk and internal audit teams must develop ownership of sustainability in their capacity as control functions. This requires embedding sustainability into risk appetite and proactively monitoring regulatory developments to maintain compliance. This is key as the sustainability regulatory landscape is subject to constant changes, as the Omnibus proposal demonstrates. To successfully take on these responsibilities, teams must be upskilled and obtain the required knowledge on sustainability and the regulatory landscape. This proactive approach ensures the additional effort needed to adapt to new or updated regulations can be reduced across the organisation, as the sustainability reporting landscape continues to develop.

What’s next

The changes proposed by the Omnibus to the CSRD, CS3D and EU Taxonomy will enter into force only after the European Parliament and the Council agree on the proposal.

While the directive will require in-scope companies to adapt their sustainability reporting agendas, they should maintain the momentum they have built around sustainability disclosures and focus on no-regrets capabilities, advancing areas where reporting requirements will remain in years to come. 

If you’d like to know more about the Omnibus, CSRD, CS3D or the EU Taxonomy and how Baringa can support you in meeting or understanding your upcoming sustainability regulatory requirements, please contact Michael Elter. 

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^{1 CSRD requires companies to report against the European Sustainability Reporting Standards (ESRS), developed by the European Financial Reporting Advisory Group (EFRAG)}