The Proposed Omnibus I Directive

The proposed Omnibus I Directive marks a major shift in the EU’s sustainability agenda. It narrows the scope of CSRD and CS3D, while aiming to simplify reporting and ease value chain obligations. Our ESG team explores the detail of the draft Directive and looks at why it presents companies with an opportunity to recalibrate their compliance efforts.

What you need to know

• The proposed Omnibus I Directive will significantly reshape the EU’s sustainability framework by introducing major changes to both the CSRD and the CS3D.
• Scope will be substantially narrowed. Many large companies and listed SMEs will no longer be subject to mandatory obligations.
• Sustainability reporting and due diligence requirements will be simplified too, including streamlined ESRS, reduced value chain burdens and lighter assurance and enforcement regimes.
• The changes will ease compliance pressures and provide long-awaited regulatory clarity for many Irish and EU-based companies.
• Companies should reassess their regulatory position and adjust compliance programmes accordingly, while preserving proportionate sustainability governance and data collection processes.

After a year marked by significant uncertainty regarding the future of both the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CS3D), 2025 ended with long-awaited clarity on the path forward.

The EU institutions reached provisional agreement in December 2025 on the key elements and text of the proposed Omnibus I Directive. When it enters into law, the Directive will result in sweeping changes to the EU’s sustainability reporting and sustainability due diligence regimes. It is intended to simplify the EU’s corporate sustainability frameworks in response to concerns about regulatory burden, challenging timelines and the impact on the EU’s competitiveness.

CSRD

The principal changes include the following:

Scope

The proposed Omnibus I Directive significantly narrows the scope of companies subject to CSRD obligations. The CSRD will now apply only to EU undertakings or groups with a net turnover exceeding EUR450 million, and an average of more than 1,000 employees during the relevant financial year. This change will have the effect of excluding from the CSRD’s scope many large EU companies and all listed SMEs that would otherwise have been required to carry out mandatory reporting. The revised scope has been estimated by some to reduce the number of undertakings subject to mandatory CSRD reporting by as much as 90%.

There will also be significantly fewer third country groups within the new scope. For third-country groups, the agreed approach is also more restrictive. The rules will apply only to EU subsidiaries and branches of non-EU companies if the EU subsidiary or branch generates net turnover exceeding EUR200 million, and the non-EU company or group generates net turnover in the EU exceeding EUR450 million.

The revisions include a requirement for the European Commission to assess whether the scope of the CSRD should be extended and to report on that assessment by 30 April 2031 and every three years thereafter.

Reporting burden

The proposed Omnibus I Directive also states that the European Sustainability Reporting Standards (ESRS) will be substantially reformed. The changes will simplify the structure and presentation of the ESRS, reduce the number of data points to focus on qualitative information and increase the alignment of the ESRS with other global reporting standards. The requirement for additional sector-specific reporting will be removed.

Value chain reporting

The changes also include reforms to value chain reporting requirements. The Omnibus I Directive will introduce the concept of a “protected undertaking”. A “protected undertaking” is an entity with an average number of employees below 1,000 that is within the value chain of an in-scope undertaking. The new framework will include limitations on the extent of information that can be required from in-scope undertakings from protected undertakings and statutory rights for protected undertakings to decline to provide information. The revised ESRS will also take account of the more limited value chain information that may be available to in-scope undertakings for reporting purposes.

Voluntary reporting

As always, out-of-scope undertakings may voluntarily report sustainability information. To encourage and facilitate voluntary reporting by smaller out-of-scope entities, new sustainability reporting standards for voluntary use will be adopted by way of a delegated act. These will be simpler, more proportionate reporting standards than the ESRS.

Assurance

The assurance standard will now remain “limited assurance”, with the option to move to “reasonable assurance” to be removed.

CS3D

The principal changes include the following:

Scope

The application of the CS3D to EU companies will change as follows:

• Current position: CS3D applies to EU companies with more than 1,000 employees (on average) and net worldwide turnover exceeding EUR450 million.
• Revised position: CS3D will apply only to companies with more than 5,000 employees (on average) and net worldwide turnover exceeding EUR 1.5 billion, or to the parent of a group meeting those thresholds.

This will limit CS3D obligations to only the EU’s largest companies.

The application of the CS3D to non-EU companies will also change from companies that generated a net turnover of more than EUR450 million in the EU in the relevant financial year to those that generated a net turnover of more than EUR1.5 billion in the EU in the relevant financial year, or the parent of a group meeting that threshold.

There are also scope reductions for EU and non-EU companies that would otherwise be subject to CS3D obligations due to the value of their franchising or licensing arrangements in the EU.

Business partner information requests

The changes will shift some of the burden of procuring information regarding the business partners of in-scope companies back to the in-scope companies themselves. Information may be requested from business partners only where that information is necessary. In the case of business partners with fewer than 5,000 employees, these requests may be made only where the information cannot reasonably be obtained by other means. In-scope companies must prioritise obtaining information relating to those of their direct business partners where adverse impacts are most likely to occur.

Climate change transition plan

The requirement for in-scope companies to adopt and implement transition plans for climate change mitigation in line with the Paris Agreement will be removed. This change is on the basis that the requirement was considered overly burdensome and disproportionate.

Enforcement and penalties

The requirement to base pecuniary penalties for non-compliance on worldwide turnover will be removed. Instead, Member States will simply be required to consider worldwide turnover figures of non-compliant companies, amongst a number of other factors, in imposing pecuniary penalties. The maximum limit of pecuniary penalties will be reduced to 3% of net worldwide turnover. The EU-wide civil liability regime will be removed.

Transposition

Member States will have 12 months to transpose the Omnibus I Directive from the date on which it enters into force. The Irish approach to transposition of the CSRD to date has been complex, with a number of amending regulations implemented to address certain anomalies in the original transposing regulations. After years of uncertainty, it is hoped the Irish transposition of the proposed Omnibus I Directive will address all remaining anomalies and ensure complete alignment between Irish law and the revised EU frameworks.

Comment

The proposed Omnibus I Directive significantly recalibrates the EU’s sustainability agenda. By substantially narrowing scope, simplifying reporting standards and reducing the indirect impact on out-of-scope undertakings in the value chains of in-scope undertakings, the EU has watered down its original ambitions. For many Irish and EU-based companies, this will come as a welcome relief after several years of regulatory uncertainty. For others, it may come as a source of additional frustration, particularly where significant resources have already been committed to ensuring compliance.

From an Irish perspective, much will now depend on the clarity and coherence of national transposition in due course. The transposition process will provide a renewed opportunity to achieve closer alignment between domestic legislation and the revised EU framework. At the same time, companies should be cautious about dismantling sustainability governance and data-collection structures altogether. Market expectations, financing requirements and the scope review mechanism built into the proposed Omnibus I Directive suggest that sustainability obligations are unlikely to disappear. Indeed, they may yet re-emerge in expanded form, so Irish companies should take a strategic approach by reassessing their regulatory exposure. Companies may wish to pause or adjust compliance programmes where appropriate but it may be advisable to retain existing core systems, data collection processes and governance structures developed to date.

Please get in touch with a member of our ESG or Corporate Governance teams to discuss how we can help.

The content of this article is provided for information purposes only and does not constitute legal or other advice.