EU agreement on the Omnibus II package: simplification of sustainability rules (CSRD and CSDDD)

The EU Council and the European Parliament have reached a provisional agreement to simplify sustainability requirements for corporate reporting and due diligence. This agreement, known as the "Omnibus II" package, reduces the regulatory burden and limits the cascading effect of obligations on smaller companies. In practice, more than 80% of European businesses will be exempt from the new environmental and social reporting obligations thanks to the elevation of application thresholds. While this means less ambition and scope than the original European Green Deal rules, it provides companies with the regulatory certainty they needed to plan their sustainability strategies. The agreement simplifies two key directives recently approved: the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD), by alleviating requirements and focusing them only on larger companies.

Next steps: The plenary assembly of the European Parliament definitively adopted the agreement on 16 December 2025, after which the text will be formally ratified by the Council and incorporated into EU law through its publication in the Official Journal. Only then will the amendments come into effect.

Main changes in the CSRD (sustainability reporting) Directive

• Reduced scope: Only EU companies with more than 1,000 employees and an annual net turnover exceeding 450 million euros will be required to report on sustainability information, including third-country companies operating in the EU that exceed this business threshold within the Union. This increase in thresholds (compared to the previous limit, which could include companies with a turnover of around 50 million) excludes approximately 85% of European companies from reporting obligations, concentrating the burden on the larger companies with a greater impact. Furthermore, pure financial holding companies (which only have shares and do not make operational decisions) are exempt from the scope of the CSRD, as long as they designate a subsidiary in the EU to report on their behalf. Similarly, companies that were already obligated to report in 2024 under the CSRD ("wave 1"), but which are now outside the scope with the new thresholds, will not have to report in 2025 or 2026 (transitional exemption).
• Voluntary sectoral standards: The voluntary nature of sector-specific reporting frameworks is maintained. In other words, there will be no mandatory sectoral standards imposed by the Commission; companies will be able to use sectoral guidelines developed on a voluntary basis. This preserves the provision introduced in the CSRD that states that sectoral standards (which complement general sustainability standards, the ESRS) are not mandatory, thereby reducing the additional regulatory burden for specific sectors.
• Limits in the value chain: To avoid imposing excessive burdens on suppliers and associated SMEs, the agreement introduces a limit to the information that large companies can require from their external partners. Companies subject to the CSRD will not be able to demand data beyond what is provided for in the voluntary standards from entities in their value chain that fall below the threshold (for instance, companies with fewer than 1,000 employees). These smaller companies will have the right to refuse additional information requests, ensuring that the new regulations do not impose indirect burdens on SMEs.
• EU digital portal: The mandate to create a European sustainability portal that provides templates, guidelines, and free information for report preparation is confirmed. This portal (similar to the EFRAG Knowledge Hub) will centralize resources and guidance, facilitating compliance with obligations for obligated companies.
• Limited verification ("assurance"):  In line with the simplification, no additional restrictions will be imposed on the requirements for external verification of sustainability reports. The CSRD will maintain the level of "limited verification" by an auditor or independent verifier, instead of raising it to a more rigorous "reasonable assurance" audit in the future. This will include the requirement for assurance, avoiding additional costs; the review of ESG information will continue to be limited in scope rather than equating to a full financial audit.

Main changes in the CSDDD (corporate due diligence) Directive

• Reduced scope: Due diligence obligations in sustainability (identifying and managing environmental and human rights impacts in operations and the supply chain) will only apply to large enterprises: those with more than 5,000 employees and a turnover exceeding 1.5 billion euros. (For non-European companies, it will apply if they generate more than 1.5 billion euros in the EU, exceeding the equivalent threshold). This drastic increase in thresholds (previously it was proposed to require this for companies with more than 1,000 employees and more than 450 million euros) will significantly reduce the number of businesses subject to the directive.
• Risk-based approach: The European Parliament's position on implementing due diligence proportional to risk prevails in the final text. Companies should only request information from their business partners when there is a reasonable expectation of a significant adverse impact, rather than systematically collecting data from all suppliers. This avoids the need to request unnecessary data from entities outside the scope of the regulation, thereby reducing bureaucracy and the cascading effect on smaller companies. Companies will be able to focus their tracking efforts on those areas and partners in the chain where the risk of negative impacts is more likely or severe, rather than doing comprehensive mapping of the entire chain.
• Removal of climate transition plans: The obligation to establish a climate transition plan aligned with the Paris Agreement is removed. The original CSDDD directive required companies to adopt plans to reduce their emissions and mitigate climate change; this requirement has been completely eliminated from the Omnibus II agreement, relieving climate-related burdens. This represents a significant regulatory relief for companies, although it is one of the measures that environmental advocates are most concerned about.
• Civil liability and national sanctions: The final regime eliminates the proposal for harmonized civil liability at the EU level for breaches of the duty of care. Instead of a uniform European framework, national laws will define the consequences and remedies for infringements (and the Commission will assess in the future whether a unified regime would be necessary). A maximum limit on penalties has also been agreed upon: fines for non-compliance with the CSDDD cannot exceed 3% of the total revenue of the infringing company, ensuring a uniform limit across the EU. In summary, the application and enforcement of the directive will be decentralized to each Member State, within these limits.
• Postponed deadline: The entry into force schedule for the CSDDD has been extended. Member States will have an additional year (until July 2028) to transpose the directive into their national legislation, and affected businesses will have until July 2029 to comply with the new obligations. This postpones implementation by 12 months compared to the initial plan, giving both regulators and companies more time to adapt to due diligence requirements.

Conclusions 

The Omnibus II package represents a political compromise that reduces sustainability requirements compared to what was originally planned, but at the same time provides clarity and certainty to businesses for the coming years. With a more limited scope of accountability and due diligence and defined deadlines, organizations will be able to resume strategic decisions that were on hold, plan compliance programs, and allocate investments with more confidence, now that they have more stable and familiar regulatory parameters. In the words of the Danish Presidency of the EU, the agreement "is an important step towards a more business-friendly environment, which will help our companies to grow and innovate" by reducing costs and administrative burdens.

However, from a sustainability perspective, the changes are also controversial. It has been pointed out that this "simplification" implies a historical reduction in environmental and social obligations, raising concerns among environmental organizations about a possible rollback of the Green Deal objectives. It is also worth noting that the agreement includes a review clause that will allow the European Commission to reassess the scope of both the CSRD and the CSDDD in the future. In other words, EU authorities could propose additional adjustments to these thresholds or obligations in the coming years if deemed necessary to achieve sustainability goals. For now, however, the EU's priority is to simplify the regulatory framework and provide businesses with definitive regulatory relief and legal certainty about what is expected of them regarding the SDGs. This balance between a reduced burden and regulatory certainty was, in fact, "what companies were waiting for" to be able to advance with their sustainability plans with certainty and predictability.

Article written by the Urban Planning and Sustainability Department of ECIJA Madrid.