The European Commission is set to introduce a sweeping revision of sustainability reporting rules under the EU Omnibus Package, expected by the end of February 2025. Designed to simplify regulations and eliminate inconsistencies, the package aims to streamline sustainability reporting requirements across the EU.
However, critics argue that these changes weaken sustainability disclosures, dilute existing regulations, and reduce transparency. One of the most significant provisions is a 35 percent reduction in reporting obligations for SMEs. While intended to ease the administrative burden and allow SMEs to focus on core business operations, there are concerns that this could ultimately hinder their sustainability progress.
Instead of supporting SMEs in their transition to sustainable practices, the reduced requirements may leave them unprepared, uninformed, and misaligned with the EU’s 2030 climate goals. Continue reading as we demystify the Omnibus Package and assess its real impact on business sustainability strategies.
Why the EU Omnibus Package Is being introduced
The Omnibus package comes in response to growing concerns that sustainability reporting requirements have become overly complex and burdensome for businesses operating in the EU. The move follows recommendations from Mario Draghi’s 2024 report, ‘The Future of European Competitiveness’.
This report argued that regulatory inconsistencies are slowing Europe’s economic and industrial transformation. The Commission aims to balance reducing compliance burdens with maintaining the ambition of the EU’s sustainability goals. However, this balance is proving controversial, with both business leaders and investors divided over whether the package will be a help or a hindrance.
What will the EU Omnibus Package mean for businesses?
The EU Omnibus Package is being introduced with the intention of simplifying sustainability reporting requirements and eliminating regulatory overlaps. However, while the package aims to reduce the administrative burden on businesses, it raises serious concerns about weakened transparency, investor uncertainty, and slower progress towards EU climate goals.
More uncertainty, not less
One of the primary objectives of the Omnibus Package is to streamline sustainability reporting obligations. However, instead of providing clarity, the revisions introduce uncertainty, particularly for businesses that have already invested heavily in aligning with existing sustainability frameworks such as the Corporate Sustainability Reporting Directive (CSRD), Sustainable Finance Disclosure Regulation (SFDR), and the EU Taxonomy.
Companies that have spent significant time and resources developing ESG strategies may now find themselves in limbo, uncertain whether previous reporting efforts will still meet compliance standards. This lack of clarity undermines business planning and could lead to increased legal and compliance costs down the line.
A step back for transparency and accountability
Critics argue that reducing sustainability disclosure requirements weakens corporate accountability and could increase the risk of greenwashing. By allowing businesses, particularly SMEs, to report less data, stakeholders (including investors, regulators, and customers) will have less visibility into companies’ true sustainability performance.
For businesses that have built credibility through robust ESG reporting, the loosening of requirements could dilute the integrity of corporate sustainability efforts, leading to greater scepticism and reduced trust in reported ESG commitments.
Investor confidence at risk
Sustainable finance has seen exponential growth in recent years, with investors actively seeking ESG-compliant businesses. However, leading investor groups managing over €6.6 trillion in assets have raised concerns that reducing reporting obligations will make it harder to assess sustainability risks, making the EU less attractive for sustainable investment.
For businesses, this could mean:
- Higher barriers to securing green financing due to lack of verifiable ESG data.
- Stronger scrutiny from international investors who rely on transparent sustainability disclosures.
- Competitive disadvantages compared to companies operating under stricter ESG regulations in other regions (e.g., the US and Asia).
SMEs left unprepared for the future
The 35 percent reduction in reporting obligations for SMEs is framed as a move to ease administrative pressure. However, this short-term relief could create long-term setbacks:
- SMEs will lack structured guidance to integrate sustainability practices.
- Without mandatory disclosures, SMEs risk falling behind larger corporations that remain subject to stringent reporting requirements.
- As supply chains become more ESG-focused, SMEs that do not report sustainability data may be excluded from major corporate partnerships.
Instead of empowering SMEs to build sustainable business models, the Omnibus Package could leave them struggling to adapt when more stringent regulations inevitably return.
Slowing down EU climate ambitions
The EU has set ambitious 2030 climate goals, including a 55 percent reduction in greenhouse gas emissions. The Omnibus Package’s relaxed reporting obligations contradict these goals, as they:
- Reduce incentives for companies to track and reduce carbon emissions.
- Make it harder to measure progress towards sustainability targets at an EU-wide level.
- Allow businesses to prioritise short-term cost savings over long-term climate resilience.
Instead of leading the way in corporate sustainability, the EU now risks diluting its global influence on ESG regulation and falling behind regions with stronger sustainability frameworks.Â
Key Takeaways
The EU Omnibus Package risks weakening corporate transparency at a time when clarity and accountability are critical. While reducing reporting burdens may ease compliance in the short term, it leaves SMEs – who make up 99 percent of the EU economy – without the guidance needed to embed sustainability into their business models.
SMEs are not just bystanders in the sustainability transition; they are essential drivers of change. If they are left behind in ESG reporting and climate action, the EU risks missing its decarbonisation and economic resilience goals. Rather than rolling back requirements, the focus should be on accessible, structured sustainability reporting that empowers SMEs without sacrificing transparency.
