The EU Omnibus Simplification Package: CSRD, CBAM, and Competitiveness

From Sustainability Ambition to Competitive Pragmatism

For the past decade, the European Union has been the world’s leading "green regulator." However, 2025 has marked a seismic shift. With the introduction of the "Omnibus Package," the EU has entered an era of pragmatism.

IMPORTANT NOTE: This article focuses exclusively on the changes introduced by the 2025 EU Omnibus Simplification Package (Omnibus I and II), which addresses corporate reporting, due diligence, and sustainability finance, not the 2019 Omnibus Directive on consumer pricing and reviews.

Driven by the Draghi and Letta Reports: The Pivot to Simplification

This package, formally known as "Omnibus I," was put forward by the European Commission on February 26, 2025 as a direct follow-up to EU leaders' calls for a "simplification revolution." Its main goal is to significantly reduce the administrative, regulatory, and reporting burdens across existing sustainability legislation to create a clearer, simpler regulatory framework for businesses, especially SMEs.

This strategic pivot was Driven by the Draghi Report on European Competitiveness and the Letta Report. The Draghi Report (officially titled "The future of European competitiveness") was an urgent, high-level analysis that concluded the EU's cumulative regulatory burden and fragmentation were hindering productivity and weakening its global position. In response, the Omnibus isn't just a series of delays; it is a fundamental pruning of the EU’s sustainability ecosystem—affecting not just the Sustainability Reporting Directive CSRD) and the Corporate Sustainability Due Diligence Directive  (CSDDD), but also the Carbon Border Adjustment Mechanism (CBAM) and EU Taxonomy for sustainable activities (EU Taxonomy).

1. The Core Pillars: CSRD and CSDDD Recalibrated

The "Stop-the-Clock" directives were the first to move, buying businesses time to breathe. A provisional agreement was reached on December 9, 2025, to finalise the simplification.

The EU CSRD Omnibus: Scope Recalibrated (1,000 Employee & €450M Threshold):

• Finalised Scope: The threshold for non-listed companies has been raised to 1,000 employees (up from 250).
• New Financial Threshold: A net turnover threshold of over €450 million has been added to further alleviate the reporting burden.
• Exemptions: Financial holding undertakings are now exempt from the CSRD’s scope.
• "Wave One" Transition: There is a transition exemption for companies that had to start reporting from financial year 2024 (the so-called "wave one" companies), allowing them to fall out of scope for 2025 and 2026.

CSDDD (Corporate Sustainability Due Diligence Directive):

• Finalised Scope: The thresholds are significantly increased to 5,000 employees and €1.5 billion net turnover. The co-legislators agreed that such large companies are best equipped to absorb the costs and burdens of due diligence processes.
• Focus Shift: The original Commission limitation to a company’s own operations, subsidiaries, and direct business partners was removed. Instead, companies can focus on the areas of their chains of activities where actual and potential adverse impacts are most likely to occur.
• Assessment Method: Companies should conduct a more general scoping exercise rather than a comprehensive mapping exercise. Due diligence efforts should be based on reasonably available information to reduce the trickle-down effect on smaller business partners.
• Climate Transition Plans (Major Change): The obligation for companies to adopt a transition plan for climate change mitigation has been removed entirely.
• Penalties and Liability (Major Change): The provisional agreement removes the EU harmonised liability regime. Penalties will be capped at a maximum of 3% of the company's net worldwide turnover.

2. Expanding the Scope: The "Other" Omnibus Legislations

The "Simplification Revolution" did not stop at reporting. The EU recognised that the cumulative burden of multiple laws was the real threat to competitiveness.

The EU Taxonomy: A Leaner "Green Dictionary"

The EU Taxonomy defines what can be sold as a "sustainable investment." Under the Omnibus, the focus is now on easing the data burden by applying a strategic, simplified approach to reporting:

Threshold Exemption: Targeted Reporting

• Exemption Criteria: Mandatory Taxonomy disclosure (Article 8 reporting) is limited to companies whose net turnover exceeds €450 million. Large firms that fall below this financial cap are exempt from mandatory reporting, although they can choose to claim green alignment voluntarily.
• Context: This measure ensures that reporting obligations are concentrated on the largest undertakings with the most financially material environmental impacts.

KPI Simplification: Focus and Materiality

• Materiality Thresholds: To reduce complexity, non-financial companies are now exempt from assessing eligibility and alignment for economic activities that account for less than 10% of their total Turnover, CapEx, or OpEx. This 10% rule is expected to reduce the number of required data points by 64%.
• OpEx Simplification: Reporting on OpEx (Operating Expenditure) alignment is now largely voluntary. Firms can opt out of the detailed OpEx assessment if it is not material to their specific business model, allowing them to focus resources on CapEx (Capital Expenditure) and Turnover, which are easier to track and audit.

CBAM (Carbon Border Adjustment Mechanism): Saving the Importers

CBAM is the EU’s tool to prevent "carbon leakage" by applying a carbon cost to carbon-intensive imports like iron and steel, aluminum, cement, and fertilizers. The Omnibus introduced a massive administrative reprieve, which was formally adopted in late 2025:

The 50-Tonne Exemption (De Minimis Threshold)

• Finalised Rule: The former exemption based on negligible value (€150 per consignment) was replaced by a single mass-based threshold of 50 tonnes of covered CBAM goods per importer per calendar year.
• Goods Covered: This threshold applies to imports of iron and steel, aluminum, fertilizers, and cement. It does not apply to imports of electricity or hydrogen.
• Impact: This simple change removes approximately 182,000 importers (nearly 90-91% of small importers, mostly SMEs) from the paperwork nightmare, while still covering over 99% of total embedded carbon emissions in scope.
• The Catch: If an importer exceeds the 50-tonne threshold at any point during the year, all imports for that entire calendar year become subject to CBAM obligations, including the imports that were previously below the threshold.
  
  This requires sophisticated real-time monitoring of imports. SMEs cannot simply "hope" they stay under; they need customs data integration to predict if they will breach the limit and apply for "Authorised CBAM Declarant" status before the breach occurs.

Context on Compliance Simplification

The Omnibus package also streamlined procedures for the importers who remain in scope (those importing over 50 tonnes):

• Declarant Authorization: The process for becoming an "Authorized CBAM Declarant" has been simplified, including relaxing the required consultation procedures.
• Extended Deadlines: The deadline to submit the annual CBAM declaration and surrender certificates has been extended from May 31st to October 30th of the following year (e.g., reports for 2026 imports are now due October 2027).
• Reduced Certificate Buffer: The quarterly requirement for importers to hold certificates equal to 80% of their embedded emissions has been reduced to 50%, easing cash flow and liquidity pressures.

EUDR (Deforestation Regulation): The Global Pivot

While originally separate, the Deforestation Regulation was pulled into the Omnibus spirit following global trade pressure. The aim of these efforts is to enable a more risk-based and targeted application of the regulation.

The core of this pragmatic shift is the EUDR Benchmarking System.

• System Function: The European Commission is required to classify countries or parts of countries into three risk categories: low, standard, or high risk. This classification relies on criteria like the rate of deforestation and the expansion of agricultural land for the relevant commodities.
• Impact on Due Diligence: The risk category dictates the level of due diligence required by EU operators and traders: Low-Risk Countries: Operators benefit from simplified due diligence, only needing to collect information but not assess and mitigate risks. Standard/High-Risk Countries: Full due diligence is mandatory, including formal risk assessment and mitigation steps.
• Enforcement Incentive: The risk category also determines the minimum level of checks by Member State authorities (e.g., 1% of operators from low-risk countries are checked, compared to 9% for high-risk countries).

This targeted approach allows companies to focus their resources where the risks are highest and incentivises producing countries to reduce deforestation rates to achieve a lower risk classification.

• A Year of Preparation: The application date for large and medium-sized operators was previously delayed by 12 months (to December 2025), although subsequent discussions have pushed this back further (to December 2026 for medium and large operators) and June 2027 for micro-small operators.
• Statement Reuse: To simplify compliance and reduce the burden on companies, particularly the first operator (often the importer), the regulation now allows for the reuse of existing documentation.
  
  Companies can now refer to already existing due diligence statements that cover the relevant commodity contained within their product, such as wood, rubber, and leather. This eliminates the need for the operator to generate or pass new due diligence information down the supply chain for re-imported products or products that are manufactured into another relevant product. This change effectively removes the burden of resubmitting statements, cutting down on redundant documentation.

InvestEU: Financing the Transition

To support the "Simplification Revolution," the secondary InvestEU Omnibus was launched to ensure that companies seeking EU funding aren't asked for duplicate data. If a company complies with CSRD, that data is now standard for EIB investment applications, removing the "double-ask" barrier to capital.

3. The "Chain of Activities" vs. The "Value Chain"

One of the subtle but critical shifts across all these legislations (CSRD, CSDDD, and EUDR) is the language change from "Value Chain" to "Chain of Activities." This is more than a semantic change; it directly defines a company's legal obligations.

The core difference between the Value Chain and the Chain of Activities lies in their scope of downstream activities and their legal purpose within EU legislation. The Value Chain is the broader term, encompassing all activities from sourcing raw materials (upstream) through production, distribution, and critically, the full life cycle of the product, including its use and disposal by the final consumer. In contrast, the Chain of Activities is a narrower, limited scope. While it covers the full upstream process, it explicitly excludes the use and disposal of the product by end-users, focusing only on direct business partners involved in the distribution, transport, and storage of the product, thereby reducing the scope of mandatory risk mitigation for companies.

By standardising this term, the EU ensures that a company’s reporting obligations (CSRD), supply chain checks (CSDDD), and deforestation mapping (EUDR) all use the same definitions and thresholds. This "maximum harmonisation" prevents Member States from adding their own "gold-plating" rules, ensuring a level playing field across Europe.

4. Next Steps: The 2026-2028 Roadmap

The "Omnibus" process isn't over—it is currently entering the most critical phase of negotiation between the Commission, the Parliament, and the Council (the Trilogue).

Phase 1: The Trilogue Negotiations (Ends Q1 2026)

• Scope Battle: The Council is pushing for a 1,000-employee limit, while the Parliament has suggested thresholds as high as 1,750 employees for some reporting. The final compromise on the proposed provisional agreement will be the deciding factor for thousands of EU companies.
• Sector-Specific Standards: A major point of contention is whether to scrap sector-specific standards (e.g., for oil and gas or textiles) entirely or make them voluntary guidelines.

Phase 2: Transposition & Technical Finalisation (2026)

• ESRS "Simplification": EFRAG is expected to release the final "streamlined" reporting standards in mid-2026. This will reveal exactly how many data points are cut.
• CSDDD Guidelines: The Commission must publish practical guidance for "direct supplier" due diligence by July 2026 to help firms understand the narrow supply chain scope.

Phase 3: The Reporting Dawn (2027-2028)

• Member State Transposition: By December 2026, EU countries must write these new simplified rules into their national laws.
• The "Stop-the-Clock" Deadline: For firms in the "second wave" (originally due in 2025), the countdown finally begins in 2027 for reports published in 2028.

Summary of the Omnibus Timeline

The EU has signalled that the Green Deal is here to stay, but it must be a "Clean Industrial Deal"—one where sustainability doesn't come at the cost of bankruptcy.