Introduction.

Following the launch of the European Green Deal, the transition to a sustainable economic model became a primary priority for the European Union (EU). However, at the start of President von der Leyen’s second term, focus shifted toward industrial competitiveness via the Clean Industrial Deal, marking a partial retreat from original environmental ambitions. The resulting regulatory framework for sustainable finance is markedly complex, leading the EU legislature to reconsider it radically to reduce the compliance burden on European companies. The Omnibus I Directive (Directive (EU) 2026/470) was introduced as a key legislative response to simplify the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CS3D).

The need to simplify the European sustainable finance framework: The Letta and Draghi reports and the European Commission’s Competitiveness Compass.

The simplification agenda was shaped by reports from Enrico Letta and Mario Draghi. Letta approached the issue from the standpoint of completing the single market, viewing simplification as an instrument of harmonisation. Draghi identified the “regulatory flow” as a major obstacle to competitiveness, recommending a systematic application of the principle of proportionality. These recommendations were adopted into the Commission’s Competitiveness Compass, which committed to reducing administrative burdens by at least 25% for all undertakings and by 35% for small and medium-sized enterprises (SMEs). The Omnibus I Directive represents the first substantive package in this simplification programme.

The simplification of the CSRD and the CS3D under the Omnibus I Directive.

The Directive substantially narrows the scope of both the CSRD and the CS3D, marking a significant retrenchment in the regulatory architecture developed under the European Green Deal. For the CSRD, the amendments are estimated to remove around 90% of previously covered undertakings from the mandatory reporting regime. Sustainability reporting is now required only for undertakings exceeding both a net turnover of EUR 450 million and an average of 1,000 employees. This quantitative test excludes listed SMEs, which were previously covered. Additionally, the power to adopt mandatory, sector-specific reporting standards has been removed, replaced by non-binding guidance. Revised standards are expected to reduce mandatory data points by over 60% and total data points by over 70%, potentially lowering reporting costs by more than 30% per undertaking.

For the CS3D, the scope is confined to the very largest companies, defined as those with more than 5,000 employees and a net worldwide turnover exceeding EUR 1.5 billion. Key substantive obligations have been eased, including the restructuring of the identification and assessment duty into a two-stage model and the deletion of the mandatory requirement to terminate business relationships as a last resort. Crucially, the obligation to adopt and put into effect a climate transition plan (Article 22) has been repealed, although companies must still disclose existing plans under the CSRD framework.

The limits of regulatory simplification: Assessing the Omnibus I Directive.

The massive contraction of the CSRD scope raises concerns regarding the availability and quality of ESG data for investors and banks. By relying on size alone, the regime may exclude capital-intensive undertakings in highly polluting sectors that are not labour-intensive. This could lead to a self-selection bias, where only strong sustainability performers choose to report voluntarily, creating significant data gaps and increasing reliance on less reliable estimates and proxies. This sits uneasily with the objectives of the Savings and Investments Union, which seeks to channel capital toward sustainable sectors.

The Directive also reveals a structural tension between simplification and harmonisation. While it extends maximum harmonisation to core due diligence stages to prevent national fragmentation, it simultaneously returns civil liability conditions to national law in the name of subsidiarity. For cross-border groups, this “renationalisation” may displace compliance costs rather than eliminate them, as they must manage exposure across multiple, fragmented national liability regimes. This creates a “trilemma” between sustainability, simplification, and harmonisation.

Conclusions.

The Omnibus I Directive addresses genuine concerns about regulatory complexity but may impair the effectiveness and coherence of the EU’s sustainable finance framework. The report suggests that a more graduated approach—using simplified mandatory standards for smaller firms rather than outright exclusion—would have better preserved the information base while respecting proportionality. The long-term success of these reforms depends on future reviews, with the Commission required to report by 2031 on whether the thresholds and scope should be revised to better balance competitiveness with the objectives of the European Green Deal.