EU Omnibus Regulation Proposal: A Step Towards Simplification or Deregulation?

At an eagerly anticipated press conference in Brussels on 26 February 2025, the European Commission announced its first Omnibus proposal, targeting the Corporate Sustainability Reporting Directive (CSRD), Corporate Sustainability Due Diligence Directive (CSDDD), and the EU Taxonomy. This development marked the first of three Omnibus proposals due this year (the second one was announced at the same event) that seek to streamline requirements on EU businesses in an attempt to boost competitiveness. Competitiveness has become a key priority for many in Brussels, not least following the Draghi and Letta reports in 2024.

The Deregulatory Reality of the EU Omnibus Regulation Proposal

“Simplification” was the word used repeatedly by the Commission leading up to the first Omnibus announcement. While some aspects of what were announced would certainly fall into that camp, the sum of the announcement should be called out for what it really was: deregulation.

Commissioners Albuquerque and Dombrovskis shocked many in attendance— both in the room and online— by announcing a raft of measures that would cut the number of companies required to report on sustainability within the EU by up to 80% and significantly water down other requirements.

These changes raise significant concern for two main reasons:

• Firstly, viewing the disclosure of sustainability related information in purely cost terms drastically simplified what function such data can play and disregarded the associated benefits.
• Secondly, the process followed by the Commission in rushing this proposal through with very little consultation and no impact assessment has generated uncertainty, damaged the stability of existing frameworks and could hinder competitiveness.

EU Omnibus Proposal vs. Current Rules: A Side-by-Side Comparison

The Omnibus proposal introduces major revisions to the Corporate Sustainability Reporting Directive (CSRD), Corporate Sustainability Due Diligence Directive (CSDDD), and the EU Taxonomy, significantly reducing the scope of companies required to report and scaling back key obligations. These changes alter how businesses disclose sustainability-related risks, conduct due diligence, and align with the EU’s sustainable finance framework. The table below outlines the key differences between the current regulations and the proposed revisions.

Table 1: Comparison of Current Regulations vs. Omnibus Regulation Proposal

The EU Omnibus Regulation Proposal Risks Harming Long-Term Competitiveness

While the Omnibus proposal is framed as a way to reduce burdens on businesses, scaling back sustainability reporting could have unintended consequences.

Undermining Sustainability Data for Investors

Simplification of the European sustainability reporting framework should have focused on ensuring investors have access to high quality and high relevance data, while keeping demands on reporting entities proportionate. No matter how competitiveness is framed, it cannot be denied that such access remains essential for investors and other stakeholders for a number of reasons:

• Data helps identify and mitigate sustainability-related risks and allows for a better understanding of these risks across different timeframes. This ensures that both short-term challenges and long-term systemic risks are addressed.
• It creates opportunities by, for example, enabling the development of sustainability-linked investment strategies. Such strategies can support innovative solutions to thorny sustainability issues like climate, human rights and biodiversity, and drive returns to investors.
• Sustainability disclosures ensure that end investors within the EU who demand sustainability-linked financial products can be sure that their money is being directed toward genuinely sustainable initiatives. In other words, that investments “do what they say on the tin”.

Much progress has been made over the past years to improve sustainability disclosures and mitigate greenwashing. The weight of the Commission’s Omnibus proposal risks undoing much of this progress.

Access to robust sustainability data is not just about compliance— it actively supports the long-term sustainability and, crucially, the long-term competitiveness of EU businesses and markets. And the Commission’s proposal risks undermining this foundation.

Scaling Back Reporting Leaves Businesses Exposed to Material Risks

For reporting entities, CSRD compliance was never intended as purely a disclosure exercise. It was a mechanism designed for in-scope companies to perform a comprehensive internal and value chain review of material impacts and financial risks, helping them build resilience and integrate sustainability into their operations.

Reporting is often the first step in implementing sustainability policies, helping companies recognize and address risks before they escalate. By eliminating this requirement for most entities, the proposal could lead to a buildup of unmanaged sustainability-related risks, reducing corporate resilience and ultimately weakening the EU’s economic competitiveness.

What Does the EU Omnibus Regulation Proposal Mean for the Market?

The Omnibus proposal doesn’t just alter the EU’s sustainability reporting landscape—it may also send a broader signal about the direction of regulatory policy. As businesses and investors assess the impact of these changes, one pressing question remains: Is this part of a larger global trend?

Regulatory Rollbacks Aren’t Just Happening in Europe

This deregulatory push is not unique to the EU. We have also seen a similar deregulatory agenda in other jurisdictions in early 2025, most notably under the new US President. For example, the SEC’s climate disclosure rule will not survive its legal challenges and federal level climate reporting requirements remain a distant prospect.

Additionally, executive orders have halted offshore wind development, eased restrictions on fossil fuel industries, and rolled back emissions reduction targets. The withdrawal from the Paris Climate Agreement has sent a clear signal that federal support for sustainable finance is no longer a given.

While many regulatory initiatives globally remain insulated from political shifts, we may see some being revisited or reopened throughout 2025. This uncertainty does not help businesses or the market.

Ignoring Compliance Could Be a Costly Misstep

Companies subject to different sustainability regulations may wrongly assume that the risk of enforcement for non-compliance has diminished in this political climate. However, this could be a costly miscalculation—the vast majority of sustainability regulations remain in force beyond political cycles, and regulatory enforcement mechanisms continue to operate independently of political grandstanding.

In this vein, announcements like the Commission’s Omnibus that are rushed through legislative processes undermine the stability of the regulatory framework. This stability is crucial for companies to plan for long-term and can support, not hinder, competitiveness.

This highlights why short-termism being pursued within certain political agendas is a risky strategy—it not only denies financial markets the stability needed to drive long-term sustainable growth, but it also exposes companies to potential compliance risks if they misinterpret political signals.

What’s Next for the EU Omnibus Regulation Proposal

The EU Parliament and Council will deliberate on the Omnibus proposals and the coming months will provide further clarity on the direction of travel.

In the meantime, it is hoped that the co-legislators will support the more sensible simplification measures in the package, while pushing back on those that sought to simply deregulate. The outcome of these deliberations will be crucial in shaping the future of EU sustainability regulations and their impact on businesses, investors, and markets. It will also determine whether the EU continues to lead in sustainable finance or risks falling behind in an era where transparent, reliable sustainability information is more critical than ever.

Interested in learning more about how the EU Omnibus proposal will impact sustainable finance in 2025 and beyond? Download our Sustainable Finance Regulatory Outlook for more insights.