EU Unveils Reforms to Simplify Sustainability & Investment Regulations

Key Takeaways

• Omnibus I and II Legislative Packages: The European Commission has introduced two comprehensive legislative packages aimed at reducing the regulatory burden on businesses by 25%, with a 35% reduction for SMEs.
• Corporate Sustainability Reporting Directive (CSRD) Overhaul: The CSRD has been significantly simplified, applying only to large companies with over 1,000 employees or €50 million in turnover, while mid-sized companies can voluntarily disclose sustainability information. Reporting deadlines have been extended to 2028.
• Corporate Sustainability Due Diligence Directive (CSDDD) Streamlining: Companies will now only need to monitor direct business partners for ESG risks, reducing due diligence frequency from annually to every five years, easing the burden on SMEs.
• Carbon Border Adjustment Mechanism (CBAM) Simplified: 90% of importers will be exempt from CBAM reporting requirements, with a 50-tonne emissions threshold introduced. Reporting requirements for those still subject to CBAM have been simplified.
• InvestEU Program Boost: €50 billion in additional funding for the InvestEU program will support clean technology, digitalization, and infrastructure, with a simplified application process and reduced compliance costs, benefiting SMEs and reducing red tape.

Deep Dive

The European Commission has officially rolled out two comprehensive legislative packages - Omnibus I and Omnibus II - aimed at reducing the regulatory burden on businesses while advancing sustainability efforts and unlocking new investment opportunities. These changes represent a significant shift for businesses across the EU, particularly small and medium-sized enterprises (SMEs), by attempting to simplify compliance with sustainability reporting, due diligence, and carbon emissions rules.

The new initiatives reflect the Commission’s goal to cut administrative burdens by 25% across all sectors, with a more ambitious 35% reduction for SMEs. This move comes in response to ongoing feedback from businesses who have long called for a more accessible, less complex regulatory framework that still supports the EU’s environmental and investment goals.

One of the most anticipated changes is the overhaul of the Corporate Sustainability Reporting Directive (CSRD). The CSRD has long been the backbone of corporate sustainability reporting within the EU, but its complexity was often a source of frustration for many businesses. Now, the Commission has significantly reduced its scope, focusing on large corporations while easing the burden on smaller businesses.

Previously, the CSRD required most businesses to report on their environmental, social, and governance (ESG) impacts, but under the new rules, 80% of companies are no longer required to report. The directive will now apply only to large firms—those with over 1,000 employees or €50 million in turnover—while mid-sized companies can voluntarily disclose sustainability information if they choose. In addition, the reporting deadlines for companies still subject to the directive have been extended to 2028, providing extra time for compliance.

Corporate Sustainability Due Diligence Directive (CSDDD) Overhaul

The Corporate Sustainability Due Diligence Directive (CSDDD) is another area that has been streamlined. This directive, which requires businesses to monitor their supply chains for potential ESG risks, has often been criticized for its complexity, particularly for smaller companies. Under the revised rules, companies will now only be required to conduct due diligence on their direct business partners, rather than extending this obligation to indirect suppliers unless there is evidence of ESG-related risks. Additionally, the frequency of these assessments has been reduced from annually to every five years, offering companies a more manageable timeline for compliance.

These changes are designed to reduce the compliance burden on businesses, particularly SMEs, while maintaining the core objective of preventing human rights abuses, environmental harm, and other adverse impacts through corporate supply chains. The new rules also protect smaller suppliers from being overwhelmed by excessive data requests, capping the reporting obligations placed on them by larger corporations.

Revised Carbon Border Adjustment Mechanism (CBAM)

Another reform concerns the Carbon Border Adjustment Mechanism (CBAM), which was introduced to address carbon leakage by taxing high-emission imports. In response to feedback from businesses, the European Commission has simplified this mechanism. 90% of importers will be exempt from CBAM reporting requirements, thanks to the introduction of a 50-tonne emissions threshold. This change will benefit an estimated 182,000 small businesses while still ensuring that the EU captures 99% of emissions from imports.

For those businesses still subject to CBAM, the reporting requirements have been simplified, with easier emissions calculations and quicker authorization for CBAM declarations. The Commission has also introduced new measures to prevent fraud, ensuring that companies cannot bypass the reporting requirements through circumvention tactics.

The CBAM will be expanded in 2026 to include additional industries, aligning the mechanism with the EU’s climate goals while maintaining a simplified process for businesses.

A Boost for Strategic Investments

The InvestEU program, which supports strategic investment projects across the EU, is also receiving a boost under the new legislative packages. With an additional €50 billion in public-private funding now unlocked, the InvestEU program aims to support key areas such as clean technology, digitalization, and infrastructure—sectors that are crucial to Europe’s long-term economic and environmental objectives.

The expansion of InvestEU comes with a simplified application process, especially for SMEs, and reduces red tape for financial intermediaries. Businesses applying for funding will also see a reduction in compliance costs, with an estimated €350 million in savings expected from the new measures.

What These Reforms Mean for Businesses

For many businesses, these changes are long overdue. The simplifications in sustainability reporting, due diligence, and investment access are designed to make it easier to comply with EU regulations without sacrificing competitiveness or environmental responsibility. The reforms also address a key concern for many SMEs—the disproportionate burden placed on smaller businesses when it comes to sustainability reporting and supply chain due diligence.

Ursula von der Leyen, President of the European Commission, expressed the Commission’s confidence in these changes, “Simplification promised, simplification delivered. We are presenting our first proposal for far-reaching simplification that will make life easier for businesses, while still ensuring we stay firmly on course toward our decarbonization goals.”

These new rules are still in the process of being reviewed by the European Parliament and Council, and certain measures, such as the CSRD reporting delays, are expected to be fast-tracked for approval. With the aim of making Europe a more competitive and sustainable market for businesses, the Commission is hopeful that these changes will pave the way for a more efficient regulatory environment. As businesses begin to prepare for these changes, the promise of a simpler, more predictable path to compliance and investment opportunities is now within reach.

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