On 26 February, the European Union introduced its omnibus proposal, proposing far-reaching changes to corporate sustainability reporting and reporting requirements. These changes aim to reduce the regulatory burden on small and medium-sized enterprises (SMEs) while continuing to advance the EU’s sustainability goals.
But what does this mean for your company? What changes are coming, and what should you prepare for? We discussed these questions in our webinar with our Head of Sustainability, Phillip Blumenthal, and our CEO, Markus Adler.
Watch the recording here or first get an overview in the following blog post.
Table of contents
1. What changes does the omnibus proposal introduce?
The omnibus proposal from the European Commission introduces extensive changes across various areas of sustainability regulation. The following section outlines the key adjustments in the CSRD, EU taxonomy, CSDDD, and CBAM.
Corporate Sustainability Reporting Directive (CSRD)
Reduction of scope
Around 80% of companies will be removed from the scope of the CSRD. Only companies with more than 1,000 employees and €50 million in revenue will still be required to report.
Reducing the burden on small companies in supply chains
The EU aims to ensure that large companies do not impose disproportionate reporting requirements on their smaller suppliers.
Postponement of reporting requirements
Companies that would have been required to report from 2026 or 2027 will receive a two-year extension until 2028.
Double materiality assessment remains a core methodology
Despite the simplifications, the concept of double materiality is still recommended as best practice for companies.
EU Taxonomy
Limiting requirements to the largest companies
In the future, only a small group of the largest companies will be required to submit taxonomy reports, aligned with the Corporate Sustainability Due Diligence Directive (CSDDD).
Voluntary reporting
Large companies that are not subject to mandatory reporting can still choose to report voluntarily.
Simplification of reporting
Companies are now allowed to report on only partially sustainable activities.
Reduction of reporting requirements by 70%
The EU intends to significantly simplify the taxonomy requirements.
Simplification of complex requirements
The particularly complex “Do no significant harm” (DNSH) criteria for pollution prevention and environmental control will be adjusted.
New financial materiality threshold
Banks and other financial institutions will receive simplifications in calculating their Green Asset Ratio (GAR).
Corporate Sustainability Due Diligence Directive (CSDDD)
Focus on direct business partners
Due diligence will no longer extend to the entire supply chain but will focus on direct business partners.
Reduced monitoring frequency
Companies are now required to assess their supply chains only every five years instead of annually.
Limited information requirements
SMEs are required to provide less detailed information on their value chain.
Eased liability rules
Companies will be better protected against excessive compensation claims.
Postponement of obligations
The largest companies will only have to comply with the new rules from 26 July 2028.
More precise definition of risk areas
Certain environmental and social risks are now more specifically defined to provide companies with better guidance.
Carbon Border Adjustment Mechanism (CBAM)
A new minimum threshold
Companies are required to submit CBAM reports only if they import at least 50 tonnes of CO₂ per year.
Simplified emission calculations
The rules for emission calculations and reporting are being clarified.
Prevention of circumvention
New rules aim to ensure that companies cannot circumvent CBAM through creative supply chain structuring.
Planned expansions
By 2026, CBAM is set to be expanded to additional industrial sectors.
2. What does this mean for sustainability management in SMEs?
For many companies, the omnibus proposal represents a significant reduction in regulatory pressure. However, sustainability management remains relevant. The introduction of the CSRD and ESRS has established the foundation for standardised, comparable, and assessable sustainability reporting. Before the implementation of international standards, reports were often inconsistent and difficult to compare. These standards enable companies to present their sustainability performance transparently, providing investors and other stakeholders with a solid basis for decision-making.
Sustainability reports can provide a competitive advantage even without a legal reporting requirement and contribute to the long-term strengthening of a company. Existing reporting standards such as ESRS and VSME remain in place and continue to offer a consistent framework. Additionally, many SMEs benefit from higher thresholds, eliminating the need for costly audit procedures. Companies working with larger businesses should still align with their ESG standards to remain competitive. Despite regulatory relief, the EU continues to pursue ambitious climate goals, making sustainable strategies essential for businesses.
3. How can Code Gaia support?
Code Gaia helps companies efficiently adapt to new regulatory requirements and implement ESG strategies effectively. The platform leverages automation to reduce the effort required for sustainability reporting and provides companies with practical solutions.
With our software, companies can report directly in line with VSME, enabling a simplified reporting process, especially for SMEs. A key component is our double materiality assessment module, which helps companies focus on the most relevant and significant topics while reducing unnecessary reporting efforts—exactly in line with the EU’s objectives under the omnibus proposal.
Through AI-supported reporting, automated CO₂ accounting, and integrated audit trails, Code Gaia simplifies compliance documentation and enhances data quality. This enables companies to efficiently pursue their sustainability goals and make strategic decisions based on reliable data.
Additionally, Code Gaia provides an active community and expert support through regular webinars and workshops. Companies benefit from ongoing exchanges with ESG experts and best practices from various industries.
5. Conclusion and next steps
The omnibus proposal significantly reduces regulatory pressure, but sustainability remains a key success factor. Companies should adjust their strategy and prioritise targeted measures to secure long-term competitive advantages. Those who continue to adhere to ESG standards will be better prepared for market demands and future regulatory developments.
Furthermore, sustainability measures should be selected based on their ability to create long-term value, support financial stability, and appeal to investors. Increasing efficiency through digital solutions helps reduce costs and optimise processes. The strategic integration of sustainability and a risk-based approach ensure that companies not only comply with regulatory requirements but also leverage sustainability as a competitive advantage.
5. Most frequent questions
CSRD scope & thresholds
Are companies with fewer than 1,000 employees permanently relieved from reporting requirements?
Currently, it appears so, but the final decision of the European Parliament is still pending.
Will the thresholds be adjusted to 750 or 500 employees?
No, such a change is not currently planned.
How are employees counted? Does the threshold apply only to the EU or globally?
The threshold of 1,000 employees refers to the average number consolidated at the group level, not just within the EU.
Will the balance sheet total of €25 million still be used as a criterion?
Yes, companies must have more than 1,000 employees and either revenue exceeding €50 million or a balance sheet total over €25 million.
Reporting deadlines & postponements
Is the postponement of the reporting requirement to 2028 final?
No, it is currently only a proposal and still needs to be approved by the European Parliament.
Does the postponement also apply to companies that are already required to report?
No, companies in Wave 1 (first reporting in 2025 for the 2024 financial year) with more than 1,000 employees must continue to report. Wave 2 (first reporting in 2026 for the 2025 financial year) and Wave 3 (first reporting in 2027 for the 2026 financial year) are affected by the postponement.
When will the final decision on the postponement be made?
The exact timeline is unclear. The European Commission aims to have the “Stop-the-Clock” proposal discussed in Parliament as soon as possible.
Should the ongoing reporting process be paused or continued?
Continue working! Use this time for better preparation and wait for the final EU decisions before scaling back sustainability ambitions.
EU taxonomy & other regulations
If the CSRD is postponed, do companies still need to comply with the EU taxonomy? Yes, companies with more than 1,000 employees and over €450 million in revenue remain subject to EU taxonomy requirements.
What impact does the postponement have on the German Supply Chain Due Diligence Act (LkSG)?
Unclear. The current LkSG exemptions are linked to the CSRD and CSDDD. How the German government will respond to the new proposals remains to be seen.
Does the CSRD still need to be transposed into national law? Yes, the CSRD will still need to be transposed into national law, although the exact timeline may depend on the final decisions made by the European Parliament.
Yes, EU law must be transposed into national law by the member states. National legislators retain sovereignty in this process.
EU taxonomy & other regulations
If the CSRD is postponed, do companies still need to comply with the EU taxonomy?
Yes, companies with more than 1,000 employees and over €450 million in revenue remain subject to EU taxonomy requirements.
Yes, companies with more than 1,000 employees and over €450 million in revenue remain subject to EU taxonomy requirements.
What impact does the postponement have on the German Supply Chain Due Diligence Act (LkSG)?
This is currently unclear. The existing LkSG exemptions are linked to the CSRD and CSDDD. How the German government will respond to the new proposals remains to be seen.
Does the CSRD still need to be transposed into national law? Yes, the CSRD will still need to be transposed into national law, although the exact timeline may depend on the final decisions made by the European Parliament.
Yes, EU law must be transposed into national law by the member states. National legislators retain sovereignty in this process.
Impact on companies outside the EU
What reporting requirements apply to international corporations with subsidiaries in the EU?
International corporations with more than €150 million in revenue in the EU must report starting from 2029 for the 2028 financial year. There are discussions about raising this threshold to €450 million.
Are non-EU companies affected by the postponement?
No, as they are not required to report until 2029 anyway.
Do subsidiaries in the EU need to report if the parent company is based outside the EU?
Yes, if the subsidiary has more than 1,000 employees AND over €50 million in revenue, it remains subject to reporting requirements.
Company-specific implementation
What should companies do that fall outside the scope? Report voluntarily or use VSME?
It depends on the company’s strategy. Companies can report voluntarily or use the VSME (Voluntary Sustainability Reporting Standard for SMEs).
Should companies pause the double materiality assessment (DMA)?
No, if the assessment has already started, it should be completed. It provides valuable insights, even independent of the reporting process.
How should companies handle investments already made in the reporting process?
The investments should be used wisely to build a solid sustainability strategy in the long term.
Is voluntary reporting audited?
No, voluntary reporting is not subject to an audit requirement.
VSME
Does Code Gaia offer a VSME reporting solution for customers?
Yes, Code Gaia’s software already includes the final version of the full VSME.
Should companies that were originally subject to CSRD reporting but now fall out of scope switch to VSME?
Yes, it is recommended to use both the Basic Module and the Comprehensive Module of the VSME ESRS to be best prepared for sustainability inquiries.
What is the best strategy for companies transitioning from CSRD to VSME?
Continue using existing double materiality assessments and focus on managing impacts, risks, and opportunities. Code Gaia is working on a mapping tool to effectively transfer ESRS data into VSME reports.
Should companies in Wave 2, which are now outside the CSRD scope, switch to VSME?
Yes, if ESRS reporting is considered too extensive, VSME ESRS is a sensible alternative. Completely stopping the reporting process now would be a step backward.
Should voluntary reports according to VSME continue to be published in the annual reports?
No legal obligation, but from a stakeholder perspective, it makes sense, e.g., as an appendix to the annual report.
Is switching from GRI III to VSME recommended?
GRI III is more comprehensive and internationally recognized. It comes with additional administrative burdens, while VSME is less bureaucratic.
Should companies that have already started reporting processes (e.g., double materiality assessment) for CSRD continue or switch to VSME?
If the CSRD reporting requirement is removed, DMA is no longer legally required, but it remains a valuable scoping tool.
Will large companies require VSME reports from their suppliers (SMEs)?
Possible, but not legally required. Companies can decide individually which information they wish to request.
Will the “trickle-down effect” mean that companies no longer under CSRD will still be required to report by their customers?
Yes, customers could still request sustainability information. The European Commission plans that large companies will only be allowed to request information that is included in the VSME ESRS.
