The European Commission has introduced a new legislative package aimed at simplifying sustainability and investment regulations. In the latest Competitiveness Compass we recently covered, the Commission outlined its strategy to enhance the EU’s economic prosperity and competitiveness. Known as Omnibus I and Omnibus II, these reforms are designed to cut administrative burdens, enhance business competitiveness, and maintain the EU’s commitment to sustainability goals. The key areas affected include the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), the Carbon Border Adjustment Mechanism (CBAM), and the InvestEU Regulation. By streamlining compliance, the EU hopes to make regulatory obligations more manageable while still upholding environmental and social governance (ESG) objectives.
In our recent article, we discussed the announced CBAM reforms and their implications in detail. A key change is that small importers, accounting for 90% of the total, are now exempt from CBAM obligations. This is achieved by introducing a cumulative annual threshold of 50 tonnes per importer. This exemption relieves smaller businesses from additional regulatory burdens while ensuring that CBAM remains effective in addressing 99% of the emissions in scope.
The Omnibus reforms also simplify emission calculations and reporting requirements. By making compliance more straightforward, the EU aims to maintain the effectiveness of CBAM while reducing complexity for businesses.
The EU has introduced new anti-circumvention measures to prevent regulatory abuse. These safeguards ensure that companies do not exploit loopholes to bypass CBAM requirements, strengthening the long-term credibility of the mechanism.
While these changes reduce administrative burdens for smaller importers, they may also introduce risks. Larger businesses may restructure their trade flows to avoid CBAM obligations, undermining the policy’s effectiveness. The EU must remain vigilant to prevent unintended consequences and ensure CBAM continues to drive meaningful emissions reductions.
The Omnibus reforms significantly reduce the number of companies required to comply with CSRD reporting. Now, only large businesses with more than 1,000 employees must adhere to these regulations, removing 80% of previously included entities. This shift helps smaller enterprises avoid excessive compliance costs and redirects sustainability efforts toward organizations with the most significant environmental impact.
Additionally, reporting obligations originally set for 2026 and 2027 have been postponed until 2028. This delay provides businesses with additional time to prepare and ensures a smoother transition. By extending the timeline, the EU acknowledges the complexity of sustainability reporting and the need for organizations to develop appropriate internal processes before full implementation.
EU Taxonomy reporting will now be mandatory only for the largest companies, while others can choose to report voluntarily. This change balances regulatory oversight with flexibility, allowing smaller businesses to engage with sustainable investment practices without unnecessary pressure. A financial materiality threshold has also been introduced for the Taxonomy reporting to eliminate non-essential disclosures, ensuring that reporting focuses on financially significant sustainability metrics.
These adjustments should significantly reduce complexity and compliance costs, particularly for SMEs. Nonetheless, certain concerns remain. Limiting the scope of CSRD reporting may weaken ESG transparency. Investors could face difficulties assessing sustainability efforts across different market segments, and the reduced number of reporting templates and sector-specific standards might limit the availability of valuable sustainability data.
Companies must now focus their due diligence efforts on direct business partners rather than the entire value chain. This change simplifies compliance and reduces the administrative burden of tracking indirect suppliers.
Due diligence assessments, previously required annually, will now occur every five years. By reducing reporting frequency, businesses can allocate resources more effectively while still maintaining oversight of sustainability risks. It remains to be seen how this will impact the efficiency of responses to emerging risks.
The Omnibus reforms also remove EU civil liability conditions from the directive, leaving enforcement to national laws. While this provides Member States with flexibility in implementation, it may result in some differences in legal standards and compliance approaches across EU jurisdictions.
The implementation deadlines for CSDDD have also been pushed back. The transposition deadline is now 2027, and application begins in 2028. This provides businesses with additional time to adjust compliance frameworks and prepare for new sustainability obligations.
The EU is reinvesting past project returns to unlock an estimated €50 billion in public and private investments. By recycling financial gains from previous initiatives, the Commission aims to increase available funding for new sustainability projects and economic resilience efforts.
Reporting requirements for financial intermediaries and SMEs are being reduced, resulting in an estimated €350 million in cost savings. This simplification allows businesses to focus on growth and innovation rather than administrative compliance. By easing reporting burdens, the EU hopes to improve accessibility to investment programs for SMEs.
Participation in EU-backed investment programs is also becoming easier for Member States. By streamlining procedures and increasing accessibility, the EU encourages broader participation from national governments and private investors. These changes help align investment initiatives with sustainability and economic growth priorities.
These reforms aim to channel more capital into innovative and sustainable sectors, strengthening EU competitiveness.
The Western Balkans, as an aspiring region for EU accession and economic integration, will experience notable ripple effects from the Omnibus reforms. Many businesses in the region export goods to the EU and are part of supply chains for European companies, making these legislative changes particularly relevant.
With CBAM’s simplified framework, Western Balkan exporters, particularly in carbon-intensive industries such as steel and cement, may face new compliance challenges. While smaller importers are now exempt, larger businesses in the region must ensure that their emissions reporting aligns with EU standards to maintain market access. Companies in these sectors should proactively invest in emissions-reduction technologies to stay competitive in the long run.
The reduced scope of CSRD reporting may benefit smaller Western Balkan businesses that interact with EU-based corporations. Previously, many SMEs in the region faced sustainability data requests from larger EU firms under trickle-down reporting obligations. The new framework shields many of these companies from unnecessary administrative burdens while still allowing voluntary participation in sustainability disclosures, which could help them attract EU investment.
Investment opportunities under the revised InvestEU framework could also provide new financing options for businesses in the region. As the EU looks to mobilize additional funds for sustainable projects, Western Balkan enterprises with strong ESG credentials may find it easier to secure funding for green initiatives. However, to fully benefit, businesses must align with EU sustainability standards and demonstrate commitment to decarbonization and responsible business practices.
The European Commission’s reforms aim to make sustainability and investment regulations more efficient. By reducing administrative burdens and delaying compliance deadlines, businesses—especially SMEs—gain much-needed relief. That said, the EU should carefully balance simplifications with long-term sustainability goals.
For businesses in the Western Balkans, these reforms present both challenges and opportunities. While regulatory compliance may become more manageable, companies must proactively adapt to evolving EU standards to maintain competitiveness. Those that align with sustainability priorities will benefit from new investment and trade opportunities within the European market.
Click the link to access the combined PDF of the key Omnibus I and Omnibus II proposals.
