Before most companies have even begun to comply, the European Union finalized rewriting its own sustainability rulebook. The Omnibus I package, dramatically scaling back flagship corporate accountability laws, enters into force on March 18. Experts warn that simplifying the regulation may actually create more problems for European businesses than it solves.
The European Commission is recalibrating key corporate sustainability measures amid growing concern over regulatory burdens and competitiveness. The Omnibus I package significantly narrows the reach of two cornerstone directives — the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD). The changes come as many companies have already invested heavily in preparing for the original rules.
Critics argue that what is presented as simplification is more consequential. While the scope has been reduced, key mechanisms have also been weakened — from reporting requirements to corporate liability across global supply chains. The result, they warn, may undermine the EU’s sustainability objectives and leave businesses navigating a more uncertain regulatory landscape.
“Massively reducing the scope of application of legislation is substantial backtracking. It is basically a renunciation of previous sustainability targets,” says Judith Arnal, associate Senior Research Fellow at the Centre for European Policy Studies and Senior Research Fellow at the Elcano Royal Institute.
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What is published
The Omnibus I package has dramatically redrawn who the EU’s sustainability rules apply to. It lets nine in ten companies off the hook for the CSRD and seven in ten for the CSDDD. Under the original framework, large companies were required to assess and address risks in their supply chains, such as child labour, unsafe working conditions and environmental damage.
Only the largest firms now qualify: those with more than 1,000 employees and revenues above €450 million for reporting obligations, and more than 5,000 employees and €1.5 billion in revenues for supply chain due diligence. Smaller listed companies, previously scheduled to come into scope at a later date, have been dropped entirely.
For the companies that remain in scope, the rules themselves have become significantly lighter. Required sustainability disclosures have been cut from 1,073 data points to 320, sector-specific reporting standards scrapped, and the level of independent verification downgraded.
The supply chain rules have been narrowed further still. Three of the directive’s most fought-over provisions have been deleted outright: the obligation to align business strategy with Paris climate targets, the EU-wide civil liability mechanism allowing victims to sue for supply chain abuses, and the requirement to terminate supplier relationships as a last resort when problems persist. The maximum fine for non-compliance has also been reduced, replacing an earlier floor of 5 per cent of global revenues with a ceiling of 3 per cent.
Long time in the making
Both directives took years to pass and nearly didn’t. The CSRD was proposed in April 2021 but didn’t clear Parliament and Council until June 2022 — and then had to wait eight months for EFRAG, the EU’s technical standards body, to build the reporting standards it depended on from scratch.
The CSDDD had it worse. First proposed in 2022, it came within a hair of collapse twice in early 2024 — once when Germany, Finland and Sweden broke the political consensus, forcing a last-minute reduction in scope to salvage a majority, and again when a single member state nearly withdrew its support. Germany was itself internally divided: its Justice and Finance Ministers tried to torpedo the compromise, ultimately forcing Berlin to abstain. The directive scraped through in May 2024, at the end of a two and a half year process that had already seen industry lobbyists use the Commission’s own internal review body to kill an earlier draft — twice.
The rules had barely passed before the consensus behind them collapsed. Germany was among 17 member states that missed the CSRD transposition deadline, prompting infringement proceedings from Brussels. What had taken a decade of advocacy and years of negotiation to build was already fraying before the ink was dry.
The ball is rolling now
By late 2024, the political conditions for rapid action were in place. Reports by former Italian prime minister Enrico Letta on the single market and by former European Central Bank president Mario Draghi on competitiveness had framed Europe’s regulatory burden as an economic concern. The European Council responded by making simplification an institutional priority, while the Budapest Declaration called for a “simplification revolution”.
Its first manoeuvre was procedural: rather than tying the question of application deadlines to the harder substantive negotiations, it separated them. A “stop-the-clock” directive—simply pausing the CSRD and CSDDD timelines—was fast-tracked as a standalone instrument and entered into force on April 17, 2025. The decoupling gave co-legislators room to negotiate contested content changes without the compliance clock running against them.
What followed in Parliament was more contentious. The EPP pushed for rollbacks well beyond what the Commission had proposed, and found a working majority by aligning with far-right groups. The final agreement went substantially further than the Commission’s original package — what had taken years to build was revised in roughly the time it typically takes Brussels to agree a committee report.
Arnal is pointed on this process: “When I see that the European Commission is promoting better regulation and simplification, and yet does not even begin with an impact assessment of these Omnibus proposals, that raises serious questions. They took the path of least resistance — massively reducing the scope of application, without any impact assessment as to what that would mean for sustainability objectives.”
A competitiveness boost?
The proposed changes to the CSRD scope could reduce administrative costs by approximately €4.4 billion annually, with one-off savings for exempted firms projected at around €1.6 billion. The value chain cap—limiting what in-scope companies can demand from smaller partners—also addresses a genuine grievance that had been building since the original CSRD entered into force.
But Arnal is sceptical the savings picture is as clean as presented. “Some companies that have already fully reported may find that certain data points are removed — and they may well continue reporting on them anyway,” she notes. For those that had already invested in compliance infrastructure, the relief is cold comfort: ”What happens to those investments?”
And even for companies remaining in scope, she argues, the simplification is partly illusory: “The amendments that have been introduced still need to be interpreted by companies. This doesn’t even deliver more regulatory certainty. At the end of the day, it creates even more work for lawyers — they are really the ones winning out of this.”
Alberto Alemanno, Jean Monnet Professor in European Union Law at HEC Paris, put it bluntly: “The €4.4 billion figure measures one side of a ledger the Commission chose not to construct.” The counterfactual costs, such as forced labour exposure, environmental liability, reputational crises, “land on companies, insurers, and ultimately public budgets. They’re harder to model than compliance hours, which is precisely why you need a rigorous impact assessment process rather than a back-of-envelope industry consultation”.
Legal uncertainty remains
The competitiveness argument draws from Draghi — but the report’s central diagnosis pointed to energy prices, fragmented capital markets, and underinvestment, not sustainability disclosure. The more pointed charge is that the Omnibus does not simplify so much as exempt: shrinking the population of covered companies by 90 percent is not the same as making the rules clearer.
The new rules take effect on March 18. Member states have until March 2027 to transpose the reporting directive and July 2028 for the due diligence directive, with company-level compliance on the latter required from July 2029.
But the procedural questions do not disappear with the entry into force. Alemanno warns that skipping both public consultation and impact assessment “creates genuine grounds for annulment before the Court of Justice of the European Union”.
Should a challenge succeed, there is no automatic fallback. The default would be reversion to the original CSDDD, with companies potentially facing retrospective exposure for conduct during the gap period. Alemanno is measured on the probability—“non-trivial but not high”—but is clear that “the more immediate risk is prolonged legal uncertainty rather than full reversion”.
