CSRD and CSDDD: Simplification of requirements through Omnibus I

The long-awaited Omnibus I simplification directive introduces sweeping changes to EU sustainability reporting and due diligence rules. It recalibrates the scope and proportionality of requirements under the CSRD and the CSDDD, and significantly reduces compliance burdens for companies by raising thresholds for reporting, narrowing extraterritorial reach and simplifying compliance regulatory requirements. 

Directive 2026/470 (“Omnibus I”)¹ amends:

• the Accounting Directive,
• the Audit Directive,
• the Corporate Sustainability Reporting Directive (“CSRD”), and
• the Corporate Sustainability Due Diligence Directive (“CSDDD”). 

Announced about a year ago as part of a broader exercise of simplification of the EU sustainability legal framework (see our previous newsflash), Omnibus I has been designed to reduce regulatory burden and improve competitiveness for companies within its scope, while aiming to preserve the policy objectives of the European Green Deal. 

CSRD

Reduced scope of reporting obligations for EU undertakings 

Sustainability reporting under the CSRD now applies to all undertakings (and parent undertakings at consolidated level), whether listed or not, and regardless of their classification pursuant to the Accounting Directive that:

• exceed EUR 450 million annual net turnover, and
• have more than 1,000 employees on average during the respective financial year.

Impact on asset managers

The reduced scope introduced by Omnibus I should also render the vast majority of Luxembourg IFMs (AIFMs and UCITS management companies) out of scope which, on the positive side, should significantly decrease the compliance burden and costs. However, the reduction in scope could negatively affect IFM’s compliance with the SFDR as it will limit their ability to receive standardized ESG data from the companies in which their funds under management invest, as many of these companies will not or no longer be in scope of the CSRD reporting requirements and may not opt to report voluntarily (see below “Standards for voluntary use”).

Third-country undertakings

The extraterritorial reach of the CSRD has been significantly narrowed. The reporting obligation now applies only where: 

• the third-country parent generates more than EUR 450 million net turnover in the EU, and
• the relevant EU subsidiary or branch generates more than EUR 200 million net turnover.

In-scope EU subsidiaries or branches subject to Article 40a of the Accounting Directive are only required to publish and make accessible the sustainability report of the third-country parent. They are not required to produce an independent sustainability report concerning their own operations.

Exemption for certain financial holdings from consolidated sustainability reporting 

Omnibus I introduces an exemption from consolidated sustainability reporting for specific EU and non-EU financial holding companies. Where a parent qualifies as a financial holding company and does not directly or indirectly manage its subsidiaries, consolidated reporting may be omitted.

The exemption is narrowly framed and subject to strict conditions to prevent circumvention. 

Changes in the composition of the group 

Parent companies can now delay sustainability reporting for newly acquired or merged subsidiaries until the next financial year, which eases administrative burdens. Similarly, if a company leaves the group during the financial year, the parent company is not required to include its sustainability information for that period. 

However, when a parent company decides to omit sustainability data for newly acquired, merged or exited subsidiaries, it must still report any major related events that could impact the group’s sustainability profile in its consolidated management report. 

Summary of scoping requirements and timeline

The revised scoping thresholds also defer the timeline of the application of CSRD reporting obligations. Undertakings that do not meet the new thresholds may be exempted by the Member States from CSRD reporting for financial years between 1 January 2024 and 31 December 2026. As from financial years starting on or after 1 January 2027, only undertakings meeting the revised thresholds will be subject to the sustainability reporting.

Protected undertakings and value-chain cap 

Omnibus I introduces the term “protected undertaking”, i.e. an undertaking in a reporting undertaking’s value chain that does not exceed the average number of 1,000 employees during the preceding financial year. Those undertakings are “protected” since they have the right to decline to provide information exceeding information specified by the standards for voluntary use (see below) in response to a request made for the purpose of sustainability reporting. Reporting undertakings may rely on a self-declaration from undertakings in their value chain to determine whether they are “protected”. This reporting flexibility only applies to sustainability reporting in the context of the Accounting Directive and does not affect voluntary data sharing or other legal or contractual obligations, including those resulting from the CSDDD.  

Revision of European Sustainability Reporting Standards (ESRS) 

Within six months of the entry into force, the Commission must adopt a delegated act to revise the currently applicable European Sustainability Reporting Standards (ESRS). The review aims to substantially reform the standards and will focus on eliminating less relevant data points, prioritising quantitative information disclosures. The revised ESRS will need to separate clearly mandatory from voluntary data, provide detailed materiality guidance, clear instructions on how to apply the materiality principle, and improve consistency with other EU sustainability legal instruments, in particular in the financial sector, while taking into account interoperability with global sustainability reporting standards.

Sector-specific standards

Although the Commission loses the ability to adopt sector-specific reporting standards, depending on the demand from undertakings, the Commission can support them by providing sector-specific guidance that illustrates and facilitates the application of ESRS within a given sector.

Standards for voluntary use 

In order to facilitate voluntary reporting of sustainability information by undertakings which, on their balance sheet date, do not exceed an average number of 1,000 employees during the preceding financial year, and to limit the information that may be required from such undertakings in the value chain, the Commission is empowered to adopt, by 19 July 2026, sustainability reporting standards for voluntary use. Those standards shall be based on the voluntary standards developed by the European Financial Reporting Advisory Group (EFRAG), set out in Commission Recommendation (EU) 2025/1710 (see our previous newsflash on this topic). They must be proportionate to, and relevant for, the capacity and the characteristics of the undertakings for which they are designed and specify the structure for presenting the sustainability information.

Extended possibilities to omit disclosure of information 

Omnibus I develops and clarifies circumstances in which undertakings should be permitted to omit certain information when applying sustainability reporting requirements, including for risk of serious prejudice to their commercial position, but also the existence of trade secrets, classified information and information protected from unauthorised access or disclosure pursuant to other Union legal acts or national law or to safeguard the privacy and security of natural or legal persons. The limitation of disclosure is said to reflect the current geopolitical context in which defence undertakings, in particular, need to have discretion to withhold sensitive information the disclosure of which could be prejudicial to their own security or to that of other legal persons, including Member States.

Assurance 

Omnibus I significantly simplifies the assurance framework. The empowerment for the Commission to adopt reasonable assurance standards is removed entirely. There will be no mandatory progression from limited to reasonable assurance. The deadline for adopting limited assurance standards is postponed to 1 July 2027.

For IFMs disclosing under article 8 or 9 of the SFDR in respect of the funds they manage, the simplification of the assurance framework means a loss of access to audited ESG data which in turn may have an impact on the quality of the ESG data reported by their funds under management. 

Single electronic reporting format 

Undertakings subject to sustainability reporting must prepare their management report in the electronic reporting format specified in Article 3 of Delegated Regulation (EU) 2019/815 on the single electronic reporting format and mark up their sustainability reporting, including with respect to Taxonomy disclosures, as specified in the Delegated Regulation. Until such rules on the marking-up are adopted, undertakings are not required to mark up their sustainability reporting.

Limited responsibility of the members of the administrative, management and supervisory bodies 

As a general rule, the members of the administrative, management and supervisory bodies of an undertaking have collective responsibility for ensuring that the (consolidated) annual financial statements, the (consolidated) management report and the (consolidated) corporate governance statement are drawn up and published in accordance with the requirements of the CSRD and applicable international accounting standards, the requirements on the single electronic reporting format, and the ESRS. Omnibus I allows Member States to exempt them from collective responsibility for ensuring that the (consolidated) management report is prepared in accordance with Article 29d of the Accounting Directive (see above).

CSDDD

Reduced scope

Going forward, the CSDDD will only apply to companies with: 

• more than 5,000 employees, and
• more than EUR 1.5 billion net worldwide turnover.

The same thresholds are set for non-EU companies (based on their net turnover within the EU). 

Extended scope of harmonisation

Omnibus I expands full harmonisation by requiring Member States to align all core due diligence obligations resulting from the CSDDD, including regarding the identification of adverse impacts, their prevention and remediation, the support at the grouplevel in this respect, the prioritisation of adverse impacts, as well as the notification mechanism and monitoring and reporting obligations. 

However, Member States may still introduce stricter provisions regarding those obligations to achieve higher protection of human, employment and social rights, the environment or the climate.

Adverse impacts

Omnibus I provides companies with greater flexibility by requiring them to identify and assess actual and potential adverse impacts through a scoping exercise in the areas where such impacts are most likely to occur. This releases companies from the obligation to identify adverse impacts at the entity level (including their own operations, those of their subsidiaries, and those of their business partners in the chain of activities). Based on the scoping exercise, in-depth assessments are required only in areas where adverse impacts are most likely and severe.

Prevention, mitigation and cessation of adverse impacts

Under the revised CSDDD, companies are no longer required to terminate business relationships where appropriate measures to prevent, mitigate or end adverse impacts have not succeeded. Instead, where the law governing the business relationship with the business partner entitles it, suspension of the business relationship shall be available as last resort measure and until the impact is addressed, and Member States shall provide an option to suspend such business relationships in contracts governed by their laws, except for contracts where the parties are legally obliged to enter into them.

Monitoring

Omnibus I allows in-scope companies to reduce the frequency of periodic assessments and monitoring of their due diligence obligations from annually to once every five years.

Removal of climate transition plan 

The revised CSDDD no longer requires a standalone climate transition plan which has been deemed a disproportionate obligation due to the administrative burden on companies and supervisory authorities. 

Cap on pecuniary penalties

The maximum cap for pecuniary penalties is now uniformly set at 3% of a company’s net turnover from the previous financial year. This replaces earlier references to a minimum threshold of 5%, providing clarity and consistency across Member States.

Civil liability

Civil liability for breaches of the CSDDD is now based on national civil law without harmonised EU standards, and removes the overriding application of a Member State’s law where claims are governed by a third-country law. Participation in industry or multi-stakeholder initiatives or use of verification measures or contractual clauses does not exempt companies from liability.

Impact on IFMs

The provision requiring the European Commission to submit a report on the necessity of further sustainability due diligence requirements for regulated financial undertakings has been dropped, thus suggesting that no additional due diligence requirements will be imposed on IFMs and other regulated financial undertakings.

Summary of scoping requirements and timeline 

Member States must transpose the CSDDD by 26 July 2028 and in-scope companies are required to comply therewith by 26 July 2029.

Entry into force of Omnibus I

Omnibus I entered into force on 18 March 2026. 

Member States are required to transpose the CSRD provisions by 19 March 2027 and the CSDDD provisions by 26 July 2028.