The Omnibus Package: Reshaping EU Sustainability Rules and the Future of SFDR

Have you heard all the latest news on the Omnibus package? The European Commission's Omnibus Package is making waves across the sustainability and financial sectors, introducing major adjustments to corporate sustainability reporting, due diligence, and financial disclosure regulations. 

Why is this legislation being proposed? Well to begin, it’s being proposed as a response to growing concerns about excessive red tape and administrative burden. The goal? These changes aim to strike a balance between corporate accountability and economic competitiveness.

But what do these updates really mean? And how will they shape the future of the Sustainable Finance Disclosure Regulation (SFDR)—one of the EU’s cornerstone frameworks for sustainable investing? Let’s break it down in this blog.

The Key Updates in the Omnibus Package

Corporate Sustainability Reporting Directive (CSRD):

The Omnibus Package significantly narrows the scope of the CSRD, which initially required thousands of companies to provide detailed sustainability disclosures. The most notable revisions include:

• Fewer Companies in Scope:
  Only companies with over 1,000 employees and at least €50 million in turnover or €25 million in total assets will be required to report under CSRD. This excludes mid-sized businesses that were previously obligated to comply.
  
  
• Simplified Reporting Requirements:
  The European Sustainability Reporting Standards (ESRS) will be streamlined, reducing the number of mandatory data points and placing greater emphasis on quantitative data over qualitative narratives.
  
  
• Sector-Specific Standards Removed:
  The EU has decided to drop the requirement for sector-specific sustainability standards, which were previously planned for industries like energy, transportation, and manufacturing.
  
  
• Limited Assurance Retained:
  The requirement for a transition to reasonable assurance (a more stringent level of audit) has been scrapped, meaning companies will only need to provide limited assurance on sustainability disclosures.
  
  
• Longer Reporting Timeline:
  Many companies originally set to report in 2026 or 2027 now have an extended deadline, with some delayed by two years.
  

Corporate Sustainability Due Diligence Directive (CSDDD):

The CSDDD is the EU’s attempt to hold businesses accountable for human rights and environmental risks across their supply chains. The Omnibus updates bring major changes:

• Narrowed Scope of Due Diligence:
  Companies are now only required to monitor direct suppliers, unless there is substantial evidence of risks further down the supply chain.
  
  
• Fewer Companies Affected:
  The original proposal applied to companies with 500 employees and €150 million in turnover; this threshold has been raised, limiting the regulation’s impact.
  
  
• Relaxed Enforcement & Liability:
  The EU-wide civil liability clause has been weakened, giving individual EU member states the power to decide penalties.

• Reduced Monitoring Frequency:
  Instead of conducting annual due diligence checks, companies only need to review their processes every five years.

Implications for the Sustainable Finance Disclosure Regulation (SFDR)

Arguably, one of the biggest consequences of the Omnibus Package is its impact on SFDR, the EU’s regulatory framework for sustainable investing.

In a recent announcement, the European Commission delayed the SFDR revision until Q4 2025, citing the need for a broader simplification strategy. This delay is significant for several reasons:

• A Pause on Additional ESG Requirements:
  Asset managers and financial institutions were expecting stricter SFDR rules in 2024, but the delay means that they will continue operating under the current framework for now.
  
  
• Potential Revisions to Article 8 & 9 Fund Classifications:
  The EU is considering simplifying the controversial Article 8 and Article 9 classifications, which determine whether funds can be marketed as sustainable.
  
  
• Harmonization with CSRD & CSDDD:
  With CSRD reporting requirements being relaxed, the ESG data available to financial institutions may also decrease, raising questions about how funds can effectively assess sustainability risks.
  

What This Means for the Future of Sustainable Investing

The Omnibus Package signals a shift in the EU’s sustainability regulatory approach, favoring business competitiveness over strict sustainability enforcement. The implications are clear:

1. More Predictability for Businesses, Less Pressure to Comply Quickly:
Companies will have fewer compliance headaches but may also face less scrutiny over sustainability claims.

2. Concerns from ESG Advocates:
Over 360 NGOs and sustainability organizations have criticized the package, arguing that it weakens corporate accountability and climate action efforts.

3. Investors May Struggle to Access High-Quality ESG Data:
If sustainability disclosures are reduced, financial institutions might find it harder to evaluate companies’ ESG performance, potentially leading to more greenwashing risks.

Final Thoughts

The Omnibus Package is a game-changer for EU sustainability regulations, easing compliance for businesses but raising concerns about accountability and transparency.

What does this legislation mean for you? For investors, fund managers, and sustainability professionals, the delay of SFDR reform until late 2025 means there’s more time to adapt, but also greater uncertainty about the future of ESG regulations in the EU.

As these regulatory updates evolve, staying informed and proactive will be key to navigating the changing landscape of sustainable finance.

What are your thoughts on these changes? Do they simplify the compliance burden, or do they risk weakening sustainability efforts in the EU? Let’s discuss and learn how to be proactive with your sustainable finance process by booking a meeting with us now!

‍