EU’s ESG compromise: What the omnibus I vote means for business

On 13 October, the European Parliament’s Legal Affairs Committee approved a sweeping compromise to scale back the EU’s corporate sustainability framework. Part of the Omnibus I Simplification Package, the vote marks a significant recalibration of the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD).

CSRD

Under the revised CSRD thresholds, only companies with more than 1,000 employees and annual turnover above €450 million will be subject to mandatory reporting. Sector-specific disclosures are now optional, and the overall volume of required data has been reduced. The focus shifts towards quantitative metrics, with less emphasis on detailed narrative reporting. To support consistency and ease of compliance, the Commission has proposed a digital “one-stop-shop” via the European Single Access Point, offering templates, guidance, and relevant resources. These changes mean around 80% of companies originally expected to fall within scope will now be excluded, with voluntary reporting encouraged for those outside the threshold.

CSDDD

The scope of the CSDDD has also been narrowed. Only companies with over 5,000 employees and turnover exceeding €1.5 billion will be required to comply, including large non-EU firms operating within the bloc that meet these criteria. This significantly reduces the number of businesses subject to mandatory due diligence obligations, excluding many mid-sized firms that were previously expected to assess ESG risks across their supply chains. A key shift is the move from a blanket due diligence requirement to a risk-based approach. Rather than systematically collecting information from all business partners, companies will now be expected to act only where there is a credible risk of adverse impact on human rights or the environment. The proposal also eliminates EU-level civil liability. Instead, companies found in violation of due diligence rules will face penalties under national laws. Fines will remain capped at five percent of global turnover. Although firms must still prepare transition plans aligned with the Paris Agreement, enforcement of these plans will depend on national discretion.

A delicate balance

Proponents of the changes argue that they ease compliance burdens and help restore competitiveness, particularly for smaller and mid-sized businesses. However, critics caution that the compromise risks undermining the EU’s leadership in sustainable business regulation. By excluding thousands of mid-sized firms, the revised thresholds could leave substantial ESG risks unaddressed. The shift away from an EU-wide civil liability regime - now replaced by enforcement at national level - also raises concerns about consistency, legal accountability, and access to justice. While the intention is to reduce administrative complexity, this decentralised approach may lead to fragmented implementation across sectors and member states. This political balancing act reflects broader tensions in the EU’s green agenda, with centre-right lawmakers threatening to align with far-right factions to push through deeper cuts. 

Next steps

The final plenary vote in the European Parliament is scheduled for 20 October 2025. If approved, trilogue negotiations between the Parliament, Council, and Commission will begin on 24 October. The Omnibus I package is expected to be formally adopted by late 2025 or early 2026.

For UK businesses with operations in the EU or integrated into EU supply chains, these developments highlight the need for a forward-looking ESG strategy. While regulatory obligations may be easing for some, stakeholder expectations, investor scrutiny, and reputational considerations remain as strong as ever.