Three scenarios for the upcoming EU Omnibus regulation

On January 29, 2025, the European Commission published the EU Competitiveness Compass, outlining the bloc's economic doctrine for the next five years. A central element of this strategy is the proposed EU Omnibus Regulation, a comprehensive initiative aimed at streamlining existing regulations to bolster economic competitiveness.

The Omnibus Regulation seeks to simplify key sustainability directives, including the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), and the EU Taxonomy. The primary goals are to reduce administrative burdens by at least 25% for large firms and 35% for small and medium-sized enterprises (SMEs). This would mean a reduction of over 275 data points from the CSRD, considerably impacting reporting requirements for companies.

A notable feature of the Omnibus is the introduction of a "Small Mid-Cap" category, targeting companies larger than SMEs but smaller than large enterprises. According to a 2024 report from the European Investment Bank (EIB), small mid-caps are defined as companies with 250-500 employees. This could suggest that the reporting threshold for 'large companies' moves from 250 to 500 employees. The aim of the new classification is to provide regulatory relief to approximately 31.000 businesses, offering them reduced reporting obligations.

The EU competitiveness Compass stems largely from the Draghi Report of 2024, which highlighted the need to close the innovation gap within the EU by fostering startups and increasing research and development investments to 3% of GDP. The report also emphasized the importance of reducing regulatory barriers that hinder economic growth.

The European Commission plans to present the detailed Omnibus proposal on February 26, 2025. Below, we lay out three possible scenarios for what's to come.

Scenario 1: The EU pulls the handbrake on sustainability reporting

Two-year postponement: The two most powerful EU countries – Germany and France – have pushed for a two year postponement of the CSRD. The European People's Party (EPP), of which Ursula von der Leyen is a member, has also pushed for a two year delay. The CSRD is already a formally introduced directive, but it could be postponed if the political pressure is high enough. The CSDDD might also be postponed by two years.

Significantly higher reporting thresholds: Germany wants to raise the threshold for 'large companies' from 250 employees to 1.000 and from €50M turnover to €450M. France aims a lot higher, stating that the minimum boundary of employees should be 5,000 employees, with turnover exceeding €1.5B. Right now, the competitiveness report has only mentioned a new definition - along with less stringent reporting requirements - for 'small mid-caps', which include companies between SMEs (<250 employees) and large companies (>250 employees). According to the EIB, small mid-caps are companies that have between 250 and 500 employees. We expect the threshold for large companies might be moved up accordingly.

Drastic reduction of data points: The EU Competitiveness Compass stated that the Omnibus regulation will be an "an unprecedented simplification effort", with at least 25% of data points being cut. This is over 275 data points in CSRD, and might be more depending on how significantly the EU cuts. The EPP wants to cut reporting obligations for large companies by at least 50%.

Scenario 2: The EU takes a detour and goes into a lower gear

A direct interpretation of the Omnibus regulation: 25% of data points, or around 275 datapoints, are removed from CSRD for all companies, 35% for SMEs. These data points may be the more technical ones, which require more work (e.g. scope 3 emissions, financial risk modelling etc.). These data points will likely be the ones to overlap between CSRD, EU Taxonomy (EUT) and CSDDD, such as financial metrics (CSRD & EUT) and social data points (CSRD & CSDDD). A risk assessment which is mandatory for both CSRD and CSDDD, will likely be merged as well.

CSDDD postponed: The CSDDD may be postponed by two years, with support being at an all-time low.

Moderate reporting threshold increase: Germany and the EPP want a reporting threshold of 1,000 employees, France 5,000 employees. Since companies between 250 and 1,000 employees have already started reporting, there might be a middle ground of - say - 500 employees.

Scenario 3: The EU takes a detour but stays in the same gear

CSRD simplification with key data points intact: Both Spain the German Sustainable Finance Advisory Committee have published position papers requesting the EU stay on course with regards to sustainability reporting. Large multinationals such as Nestlé, Unilever and Mars have also warned that the EU should not divert from its course. While the goal of cutting at least 25% of data points from the CSRD is accepted by most of these players, key data points such as Scope 3 emissions reporting and financial risk modeling should remain intact due to their significance in comprehensive sustainability assessments.

Small mid-cap category introduced: The EU proposes a new classification for "small mid-cap" companies — those larger than SMEs but smaller than large enterprises — to benefit approximately 31.000 firms with tailored regulatory simplifications. According to the EIB, small mid-caps will be companies with 250-500 employees.

No major delays: The CSRD and CSDDD proceed without major delays; however, the EU introduces phased implementation schedules and extended grace periods for smaller firms to adapt to the new requirements.

Our view

Scenario 1 feels unlikely to play out, simply because 31.000 firms have invested significant resources into their sustainability reporting (CSRD, EU Taxonomy), and overturning such an impactful decision will inevitably harm the trust European businesses have in their EU institutions.

Scenario 2 feels plausible, leaning towards the conservative side. With von der Leyen's German EPP party driving deregulation, she’s unlikely to take a firmer stance, especially with the upcoming elections.

Scenario 3 is still on the table as the EC has reaffirmed their ambition to reach net zero emissions in 2050. This would not upset the thousands of companies that have invested - some up to half a million- in their reporting processes, would reduce the reporting burden by 25-35%, and would help the European Commission save face. It is also in line with what EU member states, government advisories, companies and NGOs have requested.

Coolset's position

This is inevitably going to bring a few months of uncertainty.

That said, we genuinely believe we're well positioned for this to play out as a net positive for Coolset's customers:

• Fundamentally, our product is designed and built for adaptability. This means we are well equipped to deal with any regulatory shifts.
• We've strategically focused on the mid-market, and as a potential 250-1.000 employee category takes shape, this positions us as the explicit leader in this segment.
• Regulatory uncertainty and change will highlight why companies benefit from working with a software solution over manual/consulting approaches.

If you'd like to know more about how we can help prepare your company for the upcoming regulatory changes, feel free to schedule a call - we're happy to help.