What the CSRD omnibus reveals about sustainability regulation and SMEs

When the European Commission first presented what became known as the Omnibus sustainability package on 26 February 2025, it launched what would become one of the most consequential reinterpretations of European sustainability regulation in recent years. This omnibus proposal,  formally intended to simplify and “cut red tape” across several pieces of legislation from the Corporate Sustainability Reporting Directive (CSRD, Directive (EU) 2022/2464) to the Corporate Sustainability Due Diligence Directive (CSDDD) and the EU Taxonomy Regulation, marked a shift from regulatory expansion to targeted simplification in response to stakeholder concern about administrative burden and competitiveness. 

What emerged after ten months of negotiation in the three key institutions of the EU: the Commission, the European Parliament, and the Council, was not a complete rollback of sustainability expectations, but rather a reframing of who must comply and when. On 16 December 2025, the European Parliament adopted the final text of what is now commonly called the Omnibus Amending Directive, giving legal effect to these negotiated changes pending publication in the Official Journal of the European Union and subsequent transposition into national laws.  

Central to the political compromise was the adjustment of the reporting scope and implementation timelines originally established under the CSRD. Before the Omnibus, the CSRD promised to extend sustainability reporting requirements from about 11,000 firms under the earlier Non-Financial Reporting Directive (NFRD) to over 50,000 companies across Europe. It did so by applying materiality-based European Sustainability Reporting Standards (ESRS) progressively, based on size and type of company. But the Omnibus Amending Directive altered this approach in significant ways. Under the revised CSRD regime, the threshold for mandatory sustainability reporting is raised so that only companies with more than 1,000 employees and more than €450 million in net turnover are clearly obliged to report under the full ESRS regime, effectively excluding from CSRD coverage the vast majority of firms that previously would have been in scope.  

Small and medium enterprises (SMEs), including listed SMEs that were once set to report under proportionate standards, have now largely been removed from mandatory CSRD scope and are instead offered a voluntary reporting path supported by a simplified SME-oriented framework: the VSME. Non-EU companies retain indirect obligations: if a non-EU parent operates through an EU  subsidiary or branch that meets the turnover thresholds, reporting obligations may still follow.  

The adjustment also affected timing. Where the original CSRD timeline envisaged progressively earlier reporting start dates with larger entities reporting first, followed by smaller ones, the Omnibus package introduced transitional delays for certain waves of reporters and clarified that the application of ESRS is now aligned with the more limited scope. The so-called Stop-the-Clock provision agreed in spring 2025 postponed certain compliance dates by roughly two years for entities outside the first wave, giving organisations more breathing room to prepare for sustainability  reporting obligations they still face. 

In simple terms, the Omnibus adjustments did not erase the regulatory logic of the CSRD: rather,  they consolidated and refocused it on the largest, most impactful companies first, while opening a voluntary, SME-friendly path for smaller organisations. What looks like relief on the surface actually reveals a deeper regulatory intent: to sequence implementation in a way that prioritises credible sustainability reporting from the most influential economic actors, while still signalling that all companies remain part of the wider regulatory ecosystem. 

What this reframing makes visible is a structural reality that many SMEs had already begun to sense,  often without being able to articulate it clearly. Sustainability regulation in Europe is no longer designed to operate only through direct legal obligation. It increasingly works through economic relationships. Large companies remain the formal addressees of regulation, but their compliance depends on the quality, consistency, and credibility of information flowing from their value chains.  

For SMEs, this creates a new and often uncomfortable position. They are told they are out of scope,  yet they continue to receive sustainability questionnaires, data requests, and contractual clauses linked to CSRD, ESRS, or due diligence requirements. These requests do not disappear with the Omnibus: they intensify. What changes is not the pressure itself, but the channel through which it is applied. Regulation no longer knocks at the SME’s door directly. It arrives through clients, banks,  insurers, and business partners who must now demonstrate control, oversight, and risk management beyond their own organizational boundaries. 

This indirect pressure exposes a vulnerability that the Omnibus does not resolve: many SMEs lack the internal structure needed to respond consistently to sustainability expectations. Information exists, but it is fragmented. Decisions are taken, but not documented. Practices are in place, but not formalised. When questions arise, answers are reconstructed rather than retrieved. Over time, this creates discrepancies between what is said to one client and what is said to another, between stated commitments and operational reality. The risk that emerges is not regulatory non-compliance, but loss of credibility. 

The Omnibus also reveals how deeply sustainability regulation is now intertwined with governance assumptions. CSRD and the ESRS are built on the idea that organisations understand their impacts,  risks, and dependencies because they have systems that make these elements visible. The narrowing of scope does not invalidate this logic. It simply concentrates the obligation to demonstrate it. For SMEs operating in regulated value chains, the expectation persists informally: to know where they stand, to explain how decisions are made, and to show that sustainability-related statements are grounded in reality rather than aspiration. 

Another consequence becomes visible in the growing role of assurance-like thinking. Even in the absence of formal assurance requirements, sustainability information provided by SMEs is increasingly assessed through consistency checks, plausibility reviews, and comparative analysis.  Financial institutions integrate ESG data into risk models. Large companies review supplier information across years and across peers. Inconsistencies raise questions. Claims without a supporting structure become liabilities. The Omnibus does not stop this trend: it reinforces it by increasing reliance on indirect information flows.

This creates a paradox for SMEs. They are relieved of mandatory reporting, yet exposed to growing examination. They are encouraged to remain flexible, yet expected to be reliable. The danger lies in misunderstanding this balance. Treating the Omnibus as a signal to disengage from sustainability structuring may reduce short-term eUort, but it increases long-term fragility. Over-committing, on the other hand, by adopting corporate-level frameworks without capacity, creates a different kind of risk. 

What the Omnibus ultimately highlights is that sustainability regulation is entering a phase where structure matters more than scope. The decisive question for SMEs is no longer whether they are required to report, but whether they are capable of responding coherently when sustainability expectations arise. A minimum level of organisation: clear responsibilities, basic data awareness,  and consistent messaging, becomes a form of resilience. 

Seen through this lens, the CSRD Omnibus is neither a retreat nor a simplification in the way it is often portrayed. It is a signal that sustainability regulation has matured into a system that differentiates between legal obligation and economic relevance. SMEs remain firmly within that system. Their challenge is not to become reporters, but to avoid becoming fragile. 

What we are observing today is not a failure of sustainability regulation, but a familiar pattern in how systemic change is adopted. Large, visible actors move first under formal obligation. Smaller organisations follow later, not through mandates, but through interaction, dependency, and learning.  The CSRD Omnibus fits this logic precisely. It does not signal retreat or abandonment: it reflects an attempt to stabilise the system so that change can propagate without collapse. For SMEs, this moment can be read not as a warning, but as a window: time to understand expectations, to build proportionate structure, and to engage with sustainability on their own terms, before pressure hardens into constraint. In that sense, the Omnibus is less an endpoint than a transition, and transitions, while uncomfortable, are also where durable change becomes possible.

illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.

Track the real‑world impact behind the sustainability headlines. illuminem’s Data Hub™ offers transparent performance data and climate targets of companies driving the transition.