EU omnibus: Leaked draft suggests drastic reduction in sustainability obligations

An official announcement is due to be made this week, but a leaked draft and written requests from Member States offer clues as to the extent of the sustainability compliance simplification companies can expect.

The European Union is widely seen as a beacon of ambition for global sustainability regulation: in the last few years alone, the bloc has passed new laws around green investments, ESG reporting, sustainability due diligence, deforestation and sustainable packaging.

But a recent political shift to the right has led to pushback against a regulatory burden that some argue threatens EU competitiveness. As a result, the European government has opened the door to compromise: compliance requirements for its Deforestation Regulation have already been delayed by a year – despite opposition from companies – and negotiations are underway for a far-reaching simplification of sustainability reporting requirements.

Leaked Competitiveness Compass suggests reducing reporting burden for SMEs

According to a leaked draft of the ‘Competitiveness Compass’ – a roadmap for this simplification exercise, which the EU has called ‘omnibus regulation’, the bloc is seeking to exempt 31,000 companies from certain sustainability regulations. 

These will most likely be SMEs, who are due to comply with the Corporate Sustainability Reporting Directive (CSRD) from 2026 – with the draft mentioning “excessive reporting requests” for small firms.

The EU is also expected to create a ‘midcap’ category for firms with between 250 and 1,000 employees and sales of less than €1.5 billion or a balance sheet below €2 billion – with specific reporting requirements.

“By creating such a new category of company, bigger than SMEs but smaller than large companies, up to 31,000 companies in the EU will benefit from tailored regulatory simplification in the same spirit as SMEs,” the draft reportedly says.

This means the scope of CSRD is set to be reduced, but companies will have to wait until the publication of the first omnibus directive on February 26 to find out how exactly.

The Competitive Compass itself is due to be released to the public on January 29.

Uncertain future for CSDDD

Beyond the scope of CSRD, the first ‘simplification omnibus’ will also extend to taxonomy and sustainability due diligence – particularly the Corporate Sustainability Due Diligence Directive (CSDDD).

While the draft doesn’t offer specifics, certain member states are calling for an indefinite postponement of CSDDD compliance obligations. In a 22-page letter sent to the European Commission last week, the French government called for a “massive regulatory pause” and a revision of recently adopted legislation. 

France recommends postponing CSDDD indefinitely and immediately reopening negotiations to reduce its scope – despite the fact that the approved legislation was already significantly watered down.

Companies ask for regulatory certainty

But despite the regulatory burden, companies don’t want the EU to reconsider its position on sustainability due diligence. In a letter to the European Commission last week, 11 multinationals including Nestlé, Primark, Mars and Unilever said they have already invested significant resources in preparing for the new requirements, and expressed concern about the potential for renegotiations.

“Predictability is critical to the ability of all actors, including businesses, to make informed decisions,” they wrote.

While the first omnibus is due to be announced in February, the leaked Competitiveness Compass draft suggests that more simplifications will come down the line with a whole ‘omnibus fleet’. Other legislations that could be revised include the Carbon Border Adjustment Mechanism and public procurement rules.