The keenly awaited details of the EU’s proposed first omnibus package were published on 26 February 2025. The package includes amendments to the Corporate Sustainability Reporting Directive (CSRD) (including revision and simplification of the existing European Sustainability Reporting Standards (ESRS)), the Corporate Sustainability Due Diligence Directive (CSDDD), the Carbon Adjustment Mechanism, and the InvestEU Regulation. The package is accompanied by draft amendments to Taxonomy Delegated Acts for public consultation. Whilst the package provides a set of pragmatic and proportionate proposals that will ultimately enable companies to more effectively embrace the transition to a sustainable economy, at its heart is the aim to boost EU competitiveness by cutting administrative burden. Overall, we think those working in private funds will broadly welcome the proposals, which reduce compliance regulations (and for CSDDD, confirm the extent that financial services are caught ). However, there is likely to be continued debate among European co-legislators, so uncertainty about final agreement and timing is likely to continue for the next few months at least.
In this alert, we give an overview of the changes with the most impact on those working in private funds, in particular relating to the CSRD and CSDDD. The key changes are:
The package does not cover the Sustainable Finance Disclosure Regulation (SFDR), so any specific changes to sustainability reporting and disclosures directly related to private funds are still awaited (with the anticipated outcome of the SFDR level 1 review expected in Q4 2025).
The European Commission (the Commission) invites ‘rapid agreement’ by the co-legislators, in particular in relation to the ‘stop the clock’ proposals postponing certain disclosure requirements under the CSRD and the transposition deadline under CSDDD, so as to provide legal clarity to those undertakings currently due to report for the first time in 2026 for the 2025 financial year. The Commission expects the Omnibus I package to be agreed to and implemented by 31 December 2025.
Background
Following criticism by Mario Draghi (former president of the European Central Bank) in his 2024 report ‘The future of European competitiveness: A competitiveness strategy for Europe,’ Commission President Ursula von der Leyen announced in November 2024 that the Commission would look at an Omnibus package to cut red tape and eliminate overlaps and contradictions in sustainability reporting whilst maintaining its high standards. She also confirmed at Davos the launching of a ‘far-reaching simplification of our sustainable finance and due diligence rules’ and referred to a single and simple framework across the EU dealing with corporate law, insolvency, labour law, and taxation. This was confirmed in the Commission’s Competitiveness Compass (published 29 January), which set out a target of cutting the administrative burden by at least 25% for firms and by at least 35% for SMEs. The Omnibus packages themselves were announced in the Commission’s 11 February work programme.
CSRD
The CSRD is one of the core pillars of the EU’s sustainable finance framework, alongside the SFDR and the EU Taxonomy. Its purpose is for companies to report on their sustainability risks and impacts, as well as their percentage alignment (current and future revenues) from Taxonomy-aligned activities. This information is then passed on to end users, financial market participants and advisers. Financial market participants will then in turn use reported data under the CSRD to satisfy their own reporting obligations under the SFDR.
The CSRD came into force in January 2023 and applies on a phased basis. Member states were due to transpose the CSRD by 6 July 2024, but not all have done so (those who have not yet implemented include Luxembourg, Germany, and the Netherlands). As well as information on financial materiality, companies in scope are required to report on the social and environmental risks they face and the impact their activities have on people and the environment.
The CSRD also requires the Commission to adopt sector-specific reporting standards, with a first set of such standards due to be adopted by June 2026.
CSDDD
The CSDDD came into force on 25 July 2024, and member states currently have a two-year implementation period (to 26 July 2026). The CSDDD introduces new and substantive obligations, distinct from other sustainability reporting requirements, that start to apply from mid-2027 and that will require risk-based due diligence to identify and address environmental and human rights actual and potential adverse impacts, and that necessitate meaningful stakeholder engagement. The thresholds for in-scope companies has changed over the legislative journey, and the number of companies in scope has already been dramatically reduced.
Amendments to Taxonomy Disclosures
Proposed amendments to the Taxonomy Disclosures Delegated Act and the Taxonomy Climate and Environmental Delegated Acts include the following:
- Simplifying the reporting templates (leading to a reduction of data points by almost 70%)
- Introducing a materiality threshold to make disclosure of alignment not mandatory for companies with less than 10% eligible activities (this includes for asset managers where less than 10% of their assets under management report under the EU Taxonomy)
- Introducing the option of reporting partial disclosure “to foster transition finance, simplify and make more useful the Green Asset Ratio (GAR) used by banks”
- Reducing the scope for mandatory reporting on operational expenditures and simplifying certain ‘Do no significant harm’ (DNSH) criteria
Conclusion
The EU is walking a tightrope between lifting onerous burdens in this area to remain competitive and still requiring entities to demonstrate that they are being sustainable. There may be some disquiet from those who have already implemented the requirements; who may seek to instead embrace the opportunity to be a market leader in this field and take advantage of their preparation for effective and proactive future reporting.
Non-EU undertakings with significant subsidiaries in Europe will need to monitor the outcome of these proposals and member state implementation, as well as determine the extent to which the changes impact on their groups and potentially in-scope subsidiaries, including taking steps to be ready to conduct double-materiality assessments and value chain reporting.
[1] Broadly, this relates to companies currently due to report: (i) in 2026, being large EU companies/groups that satisfy two of: (a) a balance sheet of €25 million, (b) net turnover of €50 million, or (c) average of 250 employees in the financial year; and (ii) in 2027, being listed SMEs that are not micro-undertakings.
[2] This will impact the following entities currently subject to CSDDD requirements from 26 July 2027: (i) EU companies with more than 5,000 employees and a net worldwide turnover of €1.5 billion (or ultimate parent companies of such a group); and (ii) non-EU companies with a net EU turnover of €1.5 billion (or ultimate parent companies of such a group).
[3] This is: (i) from 26 July 2028 – to: (a) EU companies with more than 3,000 employees and a net worldwide turnover of more than €900 million; and (b) non-EU companies with a net turnover of more than €900 million in the EU; and (ii) from 26 July 2029 – to all other companies within the scope of the directive (companies with more than 1,000 employees and a net worldwide turnover of €450 million).
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