EU Lawmakers Back Omnibus Deal to Narrow Scope of Sustainability Rules

The European Parliament has approved a provisional agreement that significantly reduces the number of companies subject to EU sustainability reporting and due diligence obligations. The vote clears a major political hurdle for the Omnibus I package, a reform initiative designed to ease compliance burdens under flagship EU sustainability laws. The agreement was adopted with a clear majority in Parliament and now moves to the EU Council for final approval before entering into force.

 

From Simplification to Structural Rollback

 

The Omnibus I package was introduced by the European Commission earlier this year as a simplification exercise, responding to mounting concerns from businesses about regulatory complexity, reporting costs, and overlapping obligations. Its stated goal was to streamline sustainability rules without abandoning the EU’s broader climate and social objectives. In practice, negotiations between the Parliament and member states resulted in changes that go well beyond simplification. The final agreement sharply narrows the scope of both the Corporate Sustainability Reporting Directive and the Corporate Sustainability Due Diligence Directive, fundamentally altering how widely these rules will apply across the European economy.

 

Sustainability Reporting Now Limited to the Largest Corporates

 

Under the revised framework, sustainability reporting obligations will apply only to companies employing more than 1,000 people and generating at least €450 million in annual revenues. While the Commission had already proposed raising the employee threshold from 250 to 1,000, the additional revenue filter further restricts coverage. As a result, an estimated nine out of ten companies previously expected to fall under the CSRD will now be excluded. This represents a decisive shift away from the original intent of embedding sustainability reporting as a mainstream corporate practice across large and mid-sized businesses. Review clauses included in the agreement leave open the possibility of revisiting the scope in the future, but no timeline or conditions for expansion have been defined.

 

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Due Diligence Rules Scaled Back Even Further

 

The revisions to the Corporate Sustainability Due Diligence Directive are even more far-reaching. The new thresholds limit its application to companies with more than 5,000 employees and annual revenues exceeding €1.5 billion, effectively confining the regulation to a small group of Europe’s largest multinational firms. In parallel, the agreement narrows the depth of required due diligence. Companies will be expected to focus primarily on their direct business partners, rather than conducting systematic assessments across entire value chains, unless they have credible information pointing to risks further downstream. This marks a substantial departure from earlier versions of the directive, which sought to make human rights and environmental risk management a standard feature of corporate governance across complex global supply chains.

 

Climate Plans, Liability, and Penalties Softened

 

Beyond scope reductions, the agreement removes several core elements that had drawn opposition from industry groups. Companies will no longer be required to prepare mandatory climate transition plans under the due diligence directive, weakening the direct link between corporate governance and alignment with EU climate targets. The deal also eliminates the EU-wide civil liability regime that would have allowed affected parties to seek redress under harmonised rules. Penalties have been capped at a maximum of three percent of global revenues, reducing potential financial exposure for non-compliance. Together, these changes shift the balance of the regulation away from enforcement and accountability toward a more principles-based and flexible framework.

 

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Supply Chain Data Requests Constrained

 

One area where the agreement closely follows the Commission’s original proposal is the protection of smaller companies within supply chains. Firms with fewer than 1,000 employees will be able to refuse sustainability data requests that go beyond the voluntary SME reporting standard. Companies subject to due diligence obligations will also be instructed to rely primarily on information that is reasonably available, rather than routinely pushing detailed reporting requirements onto smaller suppliers. This is intended to prevent indirect regulatory pressure from cascading down value chains.

 

Political Signals and Next Steps

 

Following the vote, Parliament’s rapporteur Jörgen Warborn framed the outcome as a response to economic realities, emphasizing cost reductions and competitiveness while arguing that sustainability objectives remain intact. Supporters of the agreement see it as a pragmatic recalibration that preserves Europe’s climate ambition while reducing friction for businesses. Critics, however, warn that the reforms risk hollowing out the EU’s sustainability framework by limiting transparency and accountability to a narrow group of large corporations. With Council approval still pending, the political direction is now clear. The EU is shifting from rapid expansion of sustainability regulation toward consolidation and restraint. How this recalibration affects investor confidence, data availability, and the credibility of Europe’s sustainable finance agenda will become clearer as companies and markets adapt to the new rules.

 

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