The EU Omnibus Package, explained: simplification or deregulation?

On 26 February, the European Commission unveiled the much-debated Omnibus Package, a set of proposals aimed at simplifying corporate sustainability and financial reporting rules. While cutting red tape is a legitimate goal, this package risks undoing years of progress on corporate responsibility, sustainable finance, and transparency. More than a mere simplification exercise, it represents a major deregulation effort that could undermine the EU's Green Deal commitments and weaken Europe's leadership in sustainable finance.

These concerns deepened on 3 April, when the European Parliament voted overwhelmingly to "stop the clock" on key sustainability reporting and due diligence regulations — frameworks that hold companies accountable for their environmental and social impacts. This decision, part of the ‘Omnibus I’ package, delays implementation until 2028 — a move that will increase uncertainty and confusion for companies regarding what applies to them. While they will have more time to prepare, they will lack clarity on how to act and apply the rules. This adds to the burden on companies that have already started to put these requirements into effect.

Through bypassing the standard committee discussions and rushing this decision, the Parliament has raised serious questions about transparency and legislative oversight. Most crucially, it delays the essential regulations needed to drive Europe’s environmental and economic goals forward, leaving urgent climate action and corporate accountability on hold.

What is the Omnibus Package?

The Omnibus Package is a broad legislative framework that revises several key EU regulations, including:

• The Corporate Sustainability Reporting Directive (CSRD) – this determines which companies must report on their environmental, social, and governance (ESG) impact.

• The Corporate Sustainability Due Diligence Directive (CSDDD) – this sets out the requirement for companies to identify, prevent, and address human rights and environmental risks in their value chains, strengthening corporate accountability.

• The EU Taxonomy Regulation – this is the classification system that helps investors identify sustainable activities.

The stated goal of the Omnibus Package is to simplify compliance, particularly for small and medium-sized enterprises (SMEs). However, the changes go far beyond reducing bureaucracy — instead, they drastically reduce the number of companies that are  required to report their sustainability impact, weaken reporting standards, and could create loopholes that allow greenwashing to flourish.

What’s at stake?

A concerning aspect of the Omnibus Package is its impact on the EU Taxonomy. Under the new rules, the scope of companies required to report would shrink by 80%. 

Additionally, the introduction of a financial materiality threshold (where companies must report only if an activity exceeds 10% of their turnover) means significantly less information will be available to investors and to policy-makers themselves. This would make it harder to track progress on sustainability and could discourage companies from aligning with the EU Taxonomy altogether.

Sustainability reporting requirements are also being slashed, with non-financial companies seeing a 66% reduction in mandatory disclosures while financial institutions face an 89% cut. Yet, at the same time, businesses will still be required to use outdated reporting templates. These inconsistencies could reduce transparency and comparability, making it harder for investors and consumers to identify truly sustainable businesses.

The proposal also affects how banks calculate their Green Asset Ratio (GAR) – a key metric used by banks to assess their exposure to green investments. The new rules would allow banks to exclude certain companies from their GAR calculations simply because they no longer fall within the scope of CSRD reporting. While this might ease compliance for financial institutions, it ultimately weakens incentives to finance genuinely sustainable projects.

Why this matters

Supporters of the Omnibus Package argue that it is necessary to reduce the regulatory burden on businesses, particularly in an uncertain economic climate. However, these changes were rushed through without proper consultation, and risk harming Europe’s long-term economic prosperity. 

This is not a simplification of EU legislation, but rather a simplification of a complex debate.

Companies were already aware of these rules and had prepared for them. SMEs had already been granted exemptions, meaning the businesses most affected were large corporations that had the resources to comply. Changing the rules now creates uncertainty and sends the wrong signal about the EU’s commitment to its environmental goals.

Even more critically, this move could hurt ambitious companies that have invested in sustainability. If reporting rules are watered down, less ambitious businesses will face fewer obligations, while those that have committed to sustainability may be at a competitive disadvantage. Rather than creating a level playing field, this reform could discourage businesses from taking bold action on climate change.

A dangerous precedent

Beyond the immediate impact on sustainable finance, the Omnibus Package sets a worrying precedent. The European Commission has traditionally played a technical and legislative role, having the power to propose legislation, ensuring long-term policy stability. However, this decision appears to be politically driven, centralising power and prioritising short-term economic concerns over long-term sustainability.

If the EU is to maintain its credibility as a global leader in sustainable finance, it must ensure that any regulatory changes are made transparently, with due consideration of their long-term effects. Stability and predictability are essential for businesses and investors alike.

What happens next?

The Omnibus Package is now in the hands of the European Parliament and the Council, which will decide how to amend the Commission’s proposals. This is a crucial moment for policy-makers to uphold the EU’s commitment to  the environment, while addressing legitimate concerns about regulatory complexity. Rather than weakening key sustainability rules, a more balanced approach is needed — one that supports businesses without undermining transparency, accountability, and environmental commitments. 

Simplification should not come at the cost of sustainability. Sustainability and competitiveness can – and should – go hand in hand. Embedding sustainable practices is not a barrier, but a driver of innovation and long-term resilience, both of which are essential to boosting the EU’s global competitiveness.

The EU has made environmental promises that entire businesses, communities, and populations have come to rely on. To backtrack now would not only undermine years of progress, but would also be a betrayal of those who depend on these commitments. The question now is: will the European Parliament and the Council allow this vital progress to be undone?