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On February 26, 2025, the European Commission unveiled the "Simplification Omnibus," a comprehensive proposal aimed at reducing administrative burdens and enhancing the global competitiveness of businesses. It seeks to streamline existing sustainability reporting and supply chain transparency regulations, including the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD).
A significant modification under the Simplification Omnibus is the adjustment of the CSRD's applicability threshold. Previously, the CSRD mandated that companies meeting two of the following criteria—over 250 employees, more than €50 million in turnover, or a balance sheet total exceeding €25 million—were required to comply with detailed sustainability reporting standards. The new proposal raises the employee threshold to 1,000, thereby exempting approximately 80% of companies that were initially subject to the directive.
In parallel, the CSDDD is set to undergo notable revisions. The enforcement of this directive, which obligates companies to conduct environmental and human rights due diligence across their supply chains, will be postponed by one year. Moreover, the scope of due diligence will be narrowed to direct suppliers only, eliminating the requirement for companies to assess their entire supply chain. The frequency of these assessments will also be reduced from annual reviews to once every five years.
The revised CSRD and CSDDD frameworks have profound implications for SMEs. By raising the employee threshold to 1,000, many SMEs are now exempt from reporting requirements that were previously mandated. Additionally, SMEs retain the right to decline data requests from larger corporations seeking to fulfil their own CSRD obligations.
However, while these regulatory relaxations offer immediate relief, SMEs must remain vigilant about sustainability practices. Market dynamics and consumer expectations are increasingly favouring environmentally responsible companies. SMEs that proactively adopt sustainable practices may gain a competitive edge, access to new markets, and better financing opportunities. Therefore, even in the absence of stringent regulatory mandates, integrating sustainability into business strategies can be a prudent long-term investment for SMEs.
The European Commission's recent proposal to ease sustainability reporting requirements has elicited varied responses from organisations dedicated to environmental transparency and standardisation. Environmental organisations, including the Carbon Disclosure Project (CDP), have expressed concerns that relaxing these regulations could undermine progress in corporate accountability and sustainability. CDP emphasises the importance of comprehensive environmental disclosure, arguing that robust reporting standards are essential for transparency and effective risk management within financial markets. The organisation supports the integration of high-quality global standards, such as those developed by the ISSB, into existing frameworks to ensure consistency and comparability across regions. However, CDP also highlights the necessity of maintaining rigorous reporting requirements to drive meaningful action toward environmental sustainability.
The International Sustainability Standards Board (ISSB) has been actively promoting its global baseline standards, which focus on 'single materiality'—assessing financial impacts of sustainability issues on companies. This approach contrasts with the EU's existing 'double materiality' framework under the Corporate Sustainability Reporting Directive (CSRD), which considers both financial impacts on companies and the companies' impacts on society and the environment. The ISSB's stance has sparked debate among stakeholders about the potential alignment or divergence of global and EU-specific reporting standards. With the new Simplification Omnibus regulation, the EU is scaling back some of its CSRD requirements, which could signal a shift toward a more ISSB-aligned approach. By raising reporting thresholds and reducing administrative burdens, the Omnibus regulation may ease compliance for businesses but risks weakening the broader sustainability impact assessments that double materiality aims to ensure. This divergence raises questions about whether the EU will eventually harmonise with ISSB standards or continue to lead with a more ambitious sustainability disclosure framework.