On January 29, 2025, the European Commission presented the EU Compass for Competitiveness, a comprehensive strategy that will shape the regulatory landscape in the EU in the coming years. A central element of this strategy is the planned omnibus regulatory package, which aims to simplify existing directives such as the CSRD, the CSDDD and the EU taxonomy. The aim is to significantly reduce reporting obligations, particularly for SMEs, in order to promote the competitiveness of the EU economy. However, the final design is still open. We look at three possible scenarios in the context of the latest developments.

Background and aim of the omnibus initiative

The omnibus regulation aims to reduce reporting obligations by at least 25% for large companies and 35% for SMEs. A central component is the introduction of a new "small mid-cap" category, which is intended to relieve companies between SMEs and large companies. The Commission has also emphasized that the new measures are aimed at aligning reporting obligations more closely with the needs of investors and preventing the "trickle-down effect" on smaller companies in the supply chain.

Recent reports from'Responsible Investor' suggest that the discussions could include more far-reaching changes:

1. Aligning the CSRD scope of application with the CSDDD, which would mean that companies with fewer than 1,000 employees would no longer be required to report. This could exclude up to 85% of companies from the scope of application
2. A potential change of focus from dual materiality to a purely financial materiality.
3. Delays in the publication of the omnibus proposal until March 2025.

Although these points are not yet final, they indicate the direction in which the discussion could go.

Scenarios for omnibus regulation

Scenario 1: Drastic deregulation with comprehensive simplification

In this scenario, the omnibus regulation would represent a significant step backwards in terms of reporting obligations:

Significant threshold increase: As is clear from the current discussions, the threshold for large companies could be raised to 1,000 employees or more. France is even calling for a threshold of 5,000 employees.

Removal of technical requirements: Several reports, including the recommendations of the Platform on Sustainable Finance, argue for the reduction or relaxation of complex requirements such as Scope 3 emissions and Do No Significant Harm (DNSH) assessments.

Two-year postponement: The CSDDD could be postponed by two years, while the CSRD could also be delayed to give companies more time to adapt.

This scenario would significantly reduce the burden on companies, but would jeopardize the credibility of the EU's sustainability agenda in the long term.

Scenario 2: Moderate simplification with a focus on core areas

This scenario is based on a cautious reform that reduces reporting obligations without jeopardizing the fundamental sustainability goals:

Targeted data point reduction: Up to 275 data points could be removed from the CSRD, especially those that have to be reported twice in several directives such as the EU Taxonomy and the CSDDD. For example, risk assessments and social data points could be merged.

Materiality thresholds: The introduction of thresholds for KPIs and a simplification of the DNSH assessment could reduce the requirements for smaller companies.

Phased introduction: The CSRD and CSDDD could be implemented in stages, with smaller companies receiving extended transition periods.

This scenario would maintain the balance between simplification and sustainability goals while accommodating investors and companies.

Scenario 3: Structural reform with clear demarcation for SMEs

The omnibus regulation would pursue a structural reform without delays:

Introduction of the "small mid-cap" category: This new category could relieve around 31,000 companies by adapting reporting obligations to the size of the company. This would strengthen voluntary approaches for SMEs and simplify regulatory requirements for medium-sized companies.

Core requirements remain: Key data points such as Scope 3 emissions and climate risks could be retained for larger companies, while SMEs can use voluntary approaches.

Focus on data accessibility: Reports such as the one by the Platform on Sustainable Finance emphasize the need for clear guidelines and simplified data access mechanisms to reduce reporting costs.

This scenario could strengthen the EU's competitiveness in the long term without jeopardizing the integrity of sustainability reporting.

A positive outlook: Why companies should continue to focus on sustainability reporting

Despite the current uncertainties in the regulatory environment, companies should by no means stop their sustainability reporting efforts. Sustainability reporting should not be seen purely as a compliance task, but as a strategic tool to gain valuable insights into risks, opportunities and growth areas along the value chain. Similar to financial reporting, it provides a basis for decision-making for the optimal allocation of resources and strengthens the trust of investors and customers.

Even if certain requirements are relaxed, the pressure from stakeholders to provide high-quality and transparent data remains. Sustainability reports can help to better understand risks along the value chain, make capital allocations more efficient and identify new growth opportunities.

An industry expert recently emphasized: "Sustainability reporting should not just be a compliance exercise. It can help better understand risks along the value chain and point towards growth opportunities." Companies that use sustainability strategically are better positioned in the long term and can strengthen their competitiveness.

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