Background
On February 26, 2025, the European Commission published the so-called Omnibus Simplification Package. This package was introduced in response to concerns about the competitiveness of European companies and aims to reduce the administrative burden in the area of sustainability reporting. The EU's omnibus process is a legislative procedure in which several legal changes are combined in a single legislative act and various pieces of EU legislation are to be updated, harmonized or simplified at the same time. The Corporate Sustainability Reporting Directive (CSRD) was adopted in 2022 and replaces the Non-Financial Reporting Directive (NFRD). It expands the reporting obligations for companies in the EU in the area of sustainability. The CSRD requires more detailed and standardized sustainability reports to be prepared in accordance with the European Sustainability Reporting Standards (ESRS).
On April 3, 2025, the European Parliament approved the “stop-the-clock” proposal, which postponed the implementation of the CSRD by two years for companies that were originally due to report in 2026 and 2027. At the same time, the entry into force of the European Supply Chain Directive (CSDDD, Corporate Sustainability Due Diligence Directive) was postponed by one year to 2028 (European Commission 1a; 1b, 2025). The adoption of the “stop-the-clock” proposal offers companies temporary relief by giving them additional time to prepare for the new requirements.
At the same time, negotiations are ongoing on the broader changes to Omnibus I, which could potentially affect the scope and depth of reporting obligations. It remains to be seen how the final regulations will be designed and what impact they will have on companies in the EU.
Demand for practical implementation
In order for sustainability reporting to remain affordable and feasible for companies in practice, there needs to be a consistent focus on the requirements and realities of small and medium-sized enterprises (SMEs) in particular. According to the Fin.Connect.NRW project, the omnibus package already addresses key challenges - for example in relation to the high level of bureaucracy and the burden of uncoordinated reporting obligations - but still lacks the necessary specifics and additions in key areas.
On a positive note, the “stop-the-clock” proposal and the postponement of the effective date for sustainability reporting send an important signal to SMEs. Companies that would originally have been obliged to report from 2026 or 2027 will gain two additional years to adapt their internal structures. However, this deadline extension should not obscure the fact that SMEs in particular are still reliant on practical solutions in order to avoid suffering from excessive reporting bureaucracy in the long term.
In the following proposals, a distinction is made between core concerns that have already been addressed in the omnibus package and are to be implemented in the further legislative process (section 2.1) and those that Fin.Connect.NRW believes have not yet been addressed or have been inadequately addressed and require further action (section 2.2).
Core requirements for the practical implementation of sustainability reporting, which have already been addressed in the publication of the omnibus package
Consistent reduction of the bureaucratic burden
The current ESRS are tailored to large, internationally active corporations and in some cases comprise over 1,000 data points. SMEs can hardly cope with this wealth of information without incurring disproportionately high costs and resources (Neligan et al., 2025). A drastic streamlining of reporting obligations is called for by eliminating at least 25% of the data points or combining them into core indicators. A key concern is to reduce the bureaucratic burden on SMEs by better aligning reporting requirements with existing reporting obligations (ZVEI, 2024; VdW, 2025). Companies already collect and transmit a great deal of sustainability information for environmental reporting, the Taxonomy Regulation and supply chain regulation. SMEs should be able to use existing reporting obligations for environmental or social data as part of the Voluntary SME Standard (VSME) in order to avoid duplication of work. Furthermore, Fin.Connect.NRW rejects the introduction of additional sector-specific ESRS standards, as this would increase the administrative burden for SMEs without offering adequate added value (VDMA, 2025; Die deutsche Kreditwirtschaft, 2025). The first steps to reduce the burden have already been taken as part of the omnibus package: Among other things, the introduction of a voluntary, significantly streamlined reporting standard for SMEs (VSME) is planned. The postponement of the sector-specific ESRS is also an important signal in the direction of reducing bureaucracy. These developments are expressly welcomed, as they reduce the administrative burden for smaller companies and ensure greater feasibility.
Limiting the trickle-down effect through clear standards (value chain cap)
A key concern is to avoid the so-called trickle-down effect. SMEs that are part of the supply chain of larger companies or apply for financing from banks are often confronted with uncoordinated, overly detailed ESG data requirements. These requirements are often neither coordinated nor aligned with the actual performance of small businesses. To counteract this development, the draft omnibus package provides for the introduction of so-called “value chain caps”. This means that in future, larger companies and financial institutions will only be allowed to request information from SMEs that is clearly defined in a simplified standard - such as the VSME. This means a considerable relief for SMEs: instead of filling out individual, complex questionnaires, they can refer to a uniform, validated reporting framework. This creates commitment, reduces uncertainty and strengthens the independence of small companies in the sustainability dialog (BAVC/VCI, 2025; AG Mittelstand, 2025).
Reducing the scope of the reporting obligation
Another positive impact of the omnibus package is the increase in the thresholds for the reporting obligation. The previous threshold (250 employees or certain balance sheet totals/turnover limits) meant that SMEs could also fall under the full reporting obligation under the CSRD. This inclusion overburdens many companies, especially if they do not have a group structure with central reporting units. Fin.Connect.NRW therefore welcomes the planned increase to companies with more than 1,000 employees. Additional transitional periods should be created for smaller companies so that they have sufficient time to set up suitable reporting structures. Such a staggered approach not only protects against excessive demands, but also maintains the competitiveness of SMEs.
Ensuring clarity with regard to civil liability
The CSRD and the associated standards contain a large number of complex requirements, the error-free implementation of which poses a challenge for SMEs in particular. In practice, there is therefore great uncertainty as to whether and to what extent incorrect or incomplete sustainability disclosures entail liability risks under civil law. An expansion of such liability risks will not only unnecessarily complicate reporting, but may even have a deterrent effect, especially for smaller companies. A clear, practical regulation is therefore needed that exempts unintentional errors from liability, provided the report was prepared in good faith in accordance with a recognized standard - such as the VSME. Those who adhere to clearly defined rules and document their information in a comprehensible manner must not be confronted with incalculable risks. Legal certainty is a basic prerequisite for the acceptance and implementation of sustainability reporting in SMEs (DIHK, 2025). It is therefore positive that the EU-wide civil liability regulation originally envisaged in Article 29 of the CSDDD has been removed from the omnibus package. Instead, reference is made to national regulations - a step that Fin.Connect.NRW also welcomes, as it better reflects the legal reality and protects SMEs in particular from disproportionate risks.
Points that are not or only insufficiently covered in the omnibus package:
Central database or interface solution
A central problem for companies, especially SMEs, is the large number of parallel reporting obligations to different institutions - be they authorities, banks or business partners. A European platform or an interoperable interface solution can significantly alleviate this problem. In future, companies would only have to record sustainability information once and could then make it available for different purposes. This would not only significantly reduce operational costs, but also improve the quality and consistency of the data. It is also important that existing regulations and reporting requirements - for example from environmental reporting, the EU taxonomy or the Supply Chain Act - are harmonized to a greater extent. The “once-only principle”, whereby companies only have to submit their data once to government agencies - even if different authorities require the same information - must become a binding principle so that smaller companies in particular do not unnecessarily tie up resources for multiple reports. The free platform solution of the German Sustainability Code (DNK) provides a suitable basis for this.
Taxonomy
At the same time, the EU taxonomy should not only be made more flexible, but fundamentally revised in order to create realistic conditions and avoid double reporting (DEHOGA, 2025). Although the current proposal for a directive provides for targeted simplifications - for example through an opt-in model and the possibility of partial taxonomy conformity - key structural problems remain. Particularly critical: Even if companies are exempted from the CSRD, they still have to provide complex sustainability data to banks for lending purposes, as these are subject to regulatory disclosure obligations (e.g. Green Asset Ratio, SFDR - Sustainable Finance Disclosure Regulation, guidelines of the EBA - European Banking Authority or the ECB - European Central Bank). Without coordinated relief along the entire financing and reporting chain - including the banks - the goal of avoiding bureaucracy threatens to come to nothing.
Independent implementation
It must be possible for companies to implement sustainability reporting without external help. The standards - for example the VSME - should be designed in such a way that they are comprehensible, lean and applicable in corporate practice without the need for additional consulting services or expensive software tools. Only if SMEs are able to organize their reporting independently will widespread implementation be realistic and economically viable. At the same time, the standard should offer the opportunity to carry out voluntary external audits if required - for example by auditors or service providers with experience in the sector. On the one hand, this can strengthen the credibility of the information, while on the other, the decision on external support remains with the company itself. Such a solution strengthens individual responsibility and at the same time lowers the entry barriers for smaller companies to sustainability reporting (ZDH, 2024).
A greater distinction must also be made between the different regulatory levels: The CSRD (Level I) sets out the general framework, while the technical standards (Level II), such as the ESRS, already go into great detail. The implementation aids and guidelines of the European Financial Reporting Advisory Group (EFRAG) or other institutions (Level III), which are not yet available, make a decisive contribution to facilitating application for SMEs - provided they are designed in a practical and industry-specific manner. To date, however, there has been no clear delineation of the binding nature of these levels, which leads to uncertainties in application. SMEs therefore not only need leaner requirements, but also clear guidance on which parts are mandatory and where there is leeway.
Protection of sensitive company data
Another key concern from the perspective of SMEs is the protection of sensitive business and competitive information. Many companies fear that the disclosure of strategically relevant data could put them at a competitive disadvantage. This applies in particular to information on production processes, supply chains, investment decisions or margin calculations. To ensure that sustainability reporting does not lead to the unintentional publication of trade secrets, clear and reliable criteria must be created as to which content must be published and which may remain protected. Comprehensible and legally robust guidelines are needed to guide companies and their auditors. This is the only way to maintain the necessary balance between transparency and data protection. In the view of Fin.Connect.NRW, this is the only way to ensure companies' trust in the reporting framework in the long term (DIHK, 2025).
Relevance of sustainability reporting to financing
More and more banks and investors are making ESG criteria a prerequisite for granting loans or equity capital. For many SMEs that have had little contact with systematic sustainability reporting to date, this represents a considerable challenge. It is therefore all the more important that a simplified SME standard not only fulfills regulatory requirements, but is also designed to be relevant to financing. It should be designed in such a way that it forms a uniform and recognized basis for discussions with financial institutions. Ideally, such a standard should work across all sectors, be easy to understand and contain concrete indicators that are relevant for assessment by banks and investors. To ensure that sustainability reporting does not become an obstacle to financing, an SME standard (basic module of the CSRD or VSME) should be designed in such a way that it serves as a standardized basis for discussions with banks.
A company is a company - a buisness group is a business group
Companies or groups can be forced to expand their reporting unit to include the activities of other companies if they have “optional control” there. Specifically, this obligation exists in the standards E1 Climate Protection, E2 Environmental Pollution and E4 Biodiversity. In addition, material impacts, risks or opportunities may mean that subsidiaries not included in the financial statements must be included in the Group Sustainability Report due to immateriality. These two mismatches lead to unnecessary expenses and explanations on the part of the reporting companies. In material terms, it is sufficient if these two particularities are taken into account in the context of value chain reporting and the population of the financial (consolidated) annual financial statements is also exclusively relevant for the (consolidated) sustainability report.
Elimination or restriction of company-specific disclosures
The need for company-specific disclosures regulated in the ESRS should be removed or severely restricted. Otherwise, there is a risk that deleted data points will have to be included again in the (group) sustainability reports via this reporting requirement.
