Omnibus proposal to amend CSRD, CSDDD and the EU Taxonomy

On February 26, 2025, the European Commission published two of the three Omnibus Packages. The first omnibus package concerns amendments to the CSDDD (Directive (EU) 2024/1760 of the European Parliament and of the Council of 13 June 2024 on corporate due diligence with regard to sustainability and amending Directive (EU) 2019/1937 and Regulation (EU) 2023/2859), the CSRD (Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022 amending Regulation (EU) No 537/2014 and Directives 2004/109/EC, 2006/43/EC and 2013/34/EU as regards corporate sustainability reporting), and the EU Taxonomy Regulation (Regulation (EU) 2020/852 of the European Regulation (EU) 2019/2019/EC of the European Parliament and of the Council of 18 June 2020 establishing a framework to facilitate sustainable investment and amending Regulation (EU) 2019/2088). The proposed amendments include simplifications for numerous companies and an alignment of the scope of the CSDDD, the CSRD and the EU Taxonomy Regulation, so that only companies with more than 1,000 employees will be covered by the respective legal acts, albeit with different net turnover requirements. Contrary to previous expectations, the Commission is now also proposing substantive changes to the CSDDD due diligence obligations. Discussions on simplifying and harmonizing CSDDD, CSRD, and the EU Taxonomy Regulation began immediately after Mr. Draghi's report on European competitiveness in September 2024. Commission President von der Leyen publicly placed the issue on the agenda in Budapest in November 2024. With the publication of the European Commission's work program, it became clear that the amendments to CSDDD, CSRD, and the Taxonomy Regulation were to be consolidated in a so-called "omnibus act," and that two further omnibus packages were also to be developed. In addition to the sustainability omnibus, an investment omnibus package was published on February 26, 2025. A third omnibus package for paperless transactions and a new "mid-caps" category, intended to provide relief particularly for small and medium-sized enterprises (SMEs), is expected to be published by mid-year. Simultaneously with the simplifications introduced by the omnibus packages, the European Commission published the Clean Industrial Deal. The proposed amendments to the CSDDD primarily concern the content of due diligence obligations. Specifically, adjustments are to be made to the scope and frequency of risk analysis, while the circle of stakeholders to be involved will be narrowed. The requirement to terminate business relationships in the event of unsuccessful remedial and risk mitigation measures will also be limited. Furthermore, civil liability under the CSDDD will be largely abolished. In many respects, the CSDDD is thus becoming more similar to the German Supply Chain Due Diligence Act (LkSG): The scope of the CSDDD remains unchanged – at the final stage, companies with more than 1,000 employees and a net turnover of more than EUR 450 million will be subject to the CSDDD regulations by July 26, 2029 (for large companies from July 26, 2028). The scope of protected human and environmental rights also remains unchanged. According to the Omnibus proposals, obligated companies should, in principle, only conduct risk analyzes with direct suppliers (Tier 1) every five years. This could eliminate a key component of the CSDDD – the performance of an annual Tier-n related risk analysis. Furthermore, the risk analysis should only request information from direct suppliers who employ more than 500 people. This is intended to protect small and medium-sized enterprises (SMEs) from extensive information requests from their customers subject to the CSDDD (Corporate Social Data Protection Directive). Similar to the German Act on the Protection of Consumers (LkSG), risk assessments must be carried out and further measures taken if there is plausible information about potential legal violations against indirect suppliers. The definition and thus the involvement of stakeholders should also be limited. Consumers and individual employees have been removed and replaced by legitimate representatives of the workforce or associations and companies directly affected by the legal violations. Stakeholders should now, in particular, no longer be involved in monitoring the implementation of due diligence obligations or in the implementation of remedial measures. However, the possibility for civil society organizations and employee representatives to file complaints with companies regarding human rights or environmental risks remains unchanged. Corresponding complaint procedures must be maintained and made accessible to these stakeholders as well. The option of civil society organizations filing complaints, which is actively used under the German Climate Protection Act (LkSG), will therefore remain in place. As part of the prevention and remediation measures, the requirement to terminate business relationships has been largely eliminated. Instead, companies are to develop and implement an enhanced prevention action plan. As long as there is a reasonable expectation that the enhanced prevention plan will be successful, the mere fact that cooperation with the business partner continues should not trigger any liability for the company. Changes have also been proposed, particularly regarding civil liability. This is to be largely removed from the CSDDD; the CSDDD should refer to national regulations in this respect. According to the omnibus proposals, a climate action plan is now to be adopted, but not implemented as a binding obligation. However, the climate action plan should describe implementation measures.

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Proposed Amendments to the CSRD

The scope of the CSRD is to be aligned with that of the CSDDD with regard to the number of employees. Therefore, only companies that employ more than 1,000 people, in addition to meeting the existing revenue threshold (total assets of EUR 25 million or net sales revenue of EUR 50 million), will be subject to the CSRD reporting obligations. For companies that no longer fall within the scope of the CSRD (up to 1,000 employees), the Commission will introduce a voluntary reporting standard by delegated act, based on the standard for SMEs developed by EFRAG. Furthermore, companies will be given more time, and the reporting obligation will be postponed by two years. The companies subject to the reporting obligation will be required to submit their first report for 2026 in 2027. Furthermore, it was announced that the ESRS data points will be reduced – the extent of which will be proposed later by the European Commission. It is clear that the proposal, which is yet to be published, will include the removal of the Commission's authorization to adopt sector-specific standards.

Proposed Amendments to the EU Taxonomy Regulation

Under the EU Taxonomy Regulation, financial market participants are currently required to report on the share of their sustainable investments. For companies that fall within the future scope of the CSRD (large companies with more than 1,000 employees) and have a net turnover of up to EUR 450 million, the omnibus proposal provides for voluntary taxonomy reporting. For companies no longer subject to the reporting requirements after that date, the following applies: If they wish to rely on sustainable revenues, the reporting obligation remains in effect. Outlook: The European Commission's proposals for the omnibus packages must now be adopted by the European Parliament and the Council of the European Union. The amended directives (in particular the CSSDDD and CSRD) must then be transposed into national law. The transposition deadline for the CSRD is December 31, 2025, and for the CSDDD, July 26, 2027. For companies obligated under the LkSG (Statutory Health Insurance Act), the obligations stipulated therein will therefore remain in place for the time being. If the European Commission's omnibus proposals are adopted, the amendments to the LkSG are likely to be less extensive than originally expected. Furthermore, it is assumed that the German legislature will await the entry into force of the CSRD amendments before debating and enacting the CSRD Implementation Act, which has not yet been passed.