The EU Omnibus proposals, a major opportunity for Chinese companies

On February 26, 2025, the European Commission released an Omnibus package of proposals which aims to simplify a series of laws and regulations related to sustainable development, including the Corporate Sustainability Reporting Directive (CSRD), the EU Taxonomy, Corporate Sustainability Due Diligence Directive (CSDDD), the Carbon Border Adjustment Mechanism (CBAM), and others.

The Omnibus proposals reduce the complexity of EU requirements, lessen the compliance burden of companies in terms of sustainability reporting and due diligence, and focus on large companies which have a greater impact on the climate and environment through various measures such as raising thresholds, delaying reporting deadlines, and reducing overall requirements. It is worth noting that the following revisions are expected to have some impact on Chinese companies.

1.   Significantly reducing the number of companies in scope of the CSRD

• Under the proposals, only large companies with more than 1,000 employees¹ would be in scope of the CSRD and therefore required to report under the European Sustainability Reporting Standards (ESRS). The threshold for the number of employees in large companies for mandatory disclosure would increase from 250 to 1,000. The European Commission expects that the proposals will decrease the number of companies in scope by about 80%.
• Large companies that do not reach the above threshold are no longer required to report under the ESRS. At the same time, the proposals point out that EU companies subject to CSRD do not require companies in the value chain to provide information beyond what would be reported under an amended voluntary sustainability reporting standard for SMEs (VSME).
• For non-EU parent companies, only those with a turnover of EUR 450 million (the original threshold being EUR 150 million) in the EU and with at least one large EU subsidiary or EU branch with a turnover of more than EUR 50 million (the original threshold being EUR 40 million) fall into the revised scope of application. From the fiscal year 2028, eligible non-EU parent companies will report at the group level in accordance with ESRS for non-EU groups (NESRS).

2.   Delaying the CSRD implementation

• According to the proposals, unlisted large companies and listed small and medium-sized companies in scope of the CSRD are in the second and third waves, which are scheduled to release reports from the FY2025 and FY2026, respectively, under the current requirements. The proposals intend to postpone the reporting requirements for at least two years. This delay will give the EU more time to reach an agreement on substantive amendments to the CSRD.
• Affected by this, the current second wave non-listed large companies above the medium scale will report according to the revised ESRS from the FY2027; The current third wave companies no longer require mandatory reporting but can report in accordance with the amended VSME from the FY2028.

3.   Simplifying European Sustainability Reporting Standards

• Alongside communicating its first Omnibus package, the European Commission announced its intention to amend the European Sustainable Reporting Standards to substantially reduce the volume of disclosures. This includes for example removing unimportant data points, prioritising quantitative datapoints over narrative text and clearly distinguishing between mandatory and voluntary datapoints.
• The concept of double materiality would remain, but the European Commission intends to provide clearer instructions on the application of the materiality principle.
• In addition, under the proposals, the European Commission no longer plans to adopt industry-specific standards.

4.   Narrowing the scope of EU Taxonomy

The European Commission proposes making the EU Taxonomy mandatory for only a subset of large companies - that is, companies with:

• more than 1,000 employees; and
• a net turnover of more than EUR 450 million.

In contrast, companies wishing to voluntarily claim that their activities are taxonomy-aligned would, as a minimum, need to disclose the key performance indicators (KPIs) on turnover and capital expenditure.

5.   Relaxing assurance requirements

The current CSRD requires that reasonable assurance be implemented before October 1, 2028. The Commission no longer intends to move to reasonable assurance, only needing limited assurance.

6.   Changes to the Corporate Sustainability Due Diligence Directive

The European Commission has proposed major changes to the Corporate Sustainability Due Diligence Directive (CSDDD) to reduce the compliance burden of companies. Proposals include:

• The first application being postponed by one year, and the new application date set as July 2028 (originally July 2027);
• Reducing the number of business partners and stakeholders that need to be considered. The new requirements only apply to direct business partners;
• Reducing the frequency of assessment from once a year to once every five years.

7.   Optimising implementation of the Carbon Border Adjustment Mechanism

Changes in the carbon border adjustment mechanism (CBAM) mainly include:

• Setting exemptions - The introduction of a minimum exemption threshold of 50 tonnes mass of CBAM goods accumulated annually for each importer, and the exemption of small importers from their obligations. This means that about 99% of emissions are still in scope of the CBAM while exempting about 90% of importers.
• Simplifying the rules - For companies still in scope of the CBAM, simplification of their authorisation, embedded emissions calculation, reporting requirements, and other rules.
• Future expansion - Legislative proposals will be put forward at the beginning of 2026 to extend CBAM to other emissions trading scheme (ETS) departments and downstream commodities.

In order to respond to the simplification proposals, we suggest that companies take the following actions:

1.   Assess whether your company is still in scope of the relevant regulations

There may be companies in the group that will no longer be subject to relevant laws and regulations, but there may be a delay in reporting. When making relevant assessments, we suggest that companies do not only consider the number of existing employees, income and asset scale, but also consider future development and forecast data, so as to better foresee when the enterprise will be affected and make a timely response.

2.   Revisit the implementation plan and identify ”no-regret moves”

As the Omnibus proposals still need to be approved and then transposed into national laws, uncertainty persists. Companies may suspend preparation work to avoid wasting resources on clauses that may be deleted later, which could prevent them to complete these clauses’ implementation in time. To this end, we recommend that companies give priority to ”no regret moves”, such as:

• Double materiality assessment (DMA): The concept of DMA is retained in the proposals. If companies are also A-share listed companies subject to the Sustainability Report (Trial) of the Shanghai Stock Exchange, the Shenzhen Stock Exchange, and the Beijing Stock Exchange, they also need to conduct double materiality assessment. In addition, this assessment is also applicable to the formulation of sustainable development strategies to help companies identify and focus on major impacts, risks, and opportunities. Therefore, the double materiality assessment not only meets the requirements of multiple reporting frameworks, but also allows companies to focus their time and resources on priority projects that can have a greater influence in the long run.
• Continue to prepare for climate-related disclosure: Even if companies are no longer in scope of the CSRD, they should still consider the requirements of other reporting frameworks. For example, the relevant standards of the International Sustainable Standards Board (ISSB) are being implemented globally, including in China. It requires disclosure of climate related risks and opportunities, as well as greenhouse gas emission data of scope 1, 2, and 3.

3.   Take this opportunity to improve sustainable development competitiveness

Although the simplified Omnibus proposals introducing raised thresholds, delayed deadlines, and reduced requirements can reduce the compliance burden of companies in the short term, the requirements of regulators, investors, and other stakeholders on a company's ESG performance are in a volatile situation and the temporary relaxation of reporting requirements is not bound to last forever. Companies should take the opportunity of reduced compliance pressure to innovate and improve their sustainable development practices including technology solutions, decarbonisation, energy transformation, climate transition planning, and other topics closely related to their business and are material under double materiality assessment. This can help better respond to risks and opportunities, enhance competitiveness, and enhance the strategic value of companies.