The EU's Omnibus proposal: What it is aiming for and what lies ahead

In February 2025, the EU Commission proposed the first Omnibus package of sustainability rules, with the aim of simplifying and reducing EU sustainability reporting requirements. While these changes seek to cut administrative burdens, they have sparked concerns over regulatory uncertainty and potential setbacks in sustainability efforts.

As part of the European Green Deal, which targets climate neutrality by 2050 and a more sustainable, circular economy, the EU Commission introduced three directives and regulations:

⦁ Corporate Sustainability Reporting Directive (CSRD): The CSRD requires companies to report on their environmental, social and governance performance.

⦁ EU Taxonomy Regulation (EU Tax-VO): The EU Taxonomy for sustainable activities is a classification system established to clarify which economic activities are environmentally sustainable.

⦁ Corporate Sustainability Due Diligence Directive (CSDDD): This directive aims to foster sustainable and responsible corporate behaviour in companies’ operations and global value chains.

As such, the main intention of the EU is to provide clear, coherent frameworks, leveling the playing field for sustainable actions and addressing climate – as well as socially related impacts.

The Omnibus package includes simplifications in sustainability due diligence, EU Taxonomy, carbon border adjustments and investment programmes. According to the European Commission, this should enable a cost-effective implementation of sustainability rules, reducing the administrative burden overall by about 25% and for small and medium-sized enterprises (SMEs) by about 35%.

While the Omnibus proposal causes significant changes in the initial reporting obligations, several key elements have been preserved, such as the double materiality, due diligence duty in CSDDD and the core themes of reporting requirements.

Yet, the Omnibus proposal, still subject to approval by the European Parliament and the Council, raises multiple concerns. Many sustainability professionals, politicians and civil society organizations are emphasizing the importance of regulatory clarity. A shift in obligations may cause inconsistent sustainability reporting, regulatory uncertainty and a delay in sustainability investments. The first market reactions imply that a lack of a clear framework will actually lead to more bureaucracy and weaken the competitiveness of businesses, as other parts of the world, such as Japan and China, shift towards tighter sustainability regulations.

Academic research, such as this research paper on the electricity sector and this research paper on bank deregulation, confirms these reactions to the proposed deregulations and offers insights into the potential implications of policy shifts. According to scientific examinations, deregulation with the intent to improve economic efficiency can accelerate innovation, but might also cause a higher concentration of power, higher consumer prices and undermine sustainability efforts.

These findings suggest that while the Omnibus proposal seeks to reduce administrative burdens, it may also lead to unintended consequences, such as reduced transparency and potential market inefficiencies. Balancing the goals of competitiveness and sustainability remains a complex challenge, requiring careful consideration of short-term economic benefits and long-term environmental and social impacts.

As the proposals await approval, changes remain possible. While renegotiating the CSRD, CSDDD and EU Taxonomy will disrupt legislative processes across the EU and use up resources, the game is still on and individual voices are more critical than ever. It is important to recognize that deregulation does not mean deprioritizing sustainability. On the contrary, customers, suppliers and investors will not wait for regulations to dictate their actions and are most likely to further proceed with their sustainability endeavors. Whereas the legally mandated role of sustainability professionals is diminishing, market dynamics are expected to further drive sustainability efforts across the entire value chain.

Companies that proactively engage with established international standards and market trends in sustainability will emerge as industry leaders, securing competitive advantages and gaining business, as well as consumer trust.