The Omnibus I Directive and the EU Sustainable Finance Trilemma

The Omnibus I Directive (Directive (EU) 2026/470 of 24 February 2026) is the first stage of the Commission’s sustainable finance simplification agenda. In a forthcoming article, I argue that it reveals a structural feature of that framework: sustainability, simplification and harmonization cannot be maximized simultaneously, and thus pose a trilemma. Simplification may be achieved by reducing what the rules require of those within scope or the number of undertakings subject to them; harmonization requires a degree of precision that itself raises compliance costs; and sustainability depends on both the content and the breadth of the obligations. The Directive does not resolve that trilemma: simplification and harmonization have in significant part been reconciled by narrowing the class of undertakings subject to the regime rather than by calibrating the obligations imposed.

The case for simplification was set out in the Letta and Draghi Reports, which assign it different functions: for Letta it is an instrument of harmonization to complete the single market, while Draghi treats it as an autonomous objective and points to the CSRD and the CS3D as paradigmatic instances of excessive burden. The Competitiveness Compass of 29 January 2025 committed the Commission to cut administrative burdens by at least 25% for all undertakings and 35% for SMEs. Omnibus Package I followed on 26 February 2025: the ‘stop-the-clock’ Directive (EU) 2025/794 and then, from COM(2025) 81 final, the Omnibus I Directive, which contracted the regime further.

Several CSRD amendments are genuine simplification of requirements rather than narrowing of scope, each responding to an identifiable source of unnecessary complexity: the revision of the ESRS adopted on 3 July 2026 is expected to reduce mandatory data points by over 60% and reporting costs by over 30% per undertaking; the power to adopt mandatory sector-specific standards has been removed; the value-chain cap now covers any ‘protected undertaking’ not exceeding an average of 1,000 employees, and the information that may be requested from them is capped by those standards; and Article 29ca of Directive 2013/34/EU provides proportionate standards for voluntary use.

The contraction of the mandatory scope is more difficult to justify: reporting is now required only of undertakings exceeding EUR 450 million in net turnover and an average of 1,000 employees, a cumulative test estimated to remove around 90% of those previously covered; listed SMEs are excluded, and the admission of securities to trading is no longer sufficient in itself. The mandatory transition to reasonable assurance has also been abandoned, leaving limited assurance as the only level expressly contemplated by the current Union framework.

That contraction weakens the framework’s informational foundations: voluntary reporting invites self-selection bias, as the ECB observed on COM(2025) 81 final. Fewer undertakings disclosing Taxonomy alignment means more reliance on estimates downstream, and the Commission’s proposed SFDR revision responds by scaling back financial market participants’ obligations.

The narrowing also limits reporting’s capacity to influence conduct: on the ECB’s estimates the previous scope covered only around 37% of the CO₂ emissions of EU undertakings, while SMEs account for roughly 63%; and the employee threshold excludes capital-intensive undertakings in polluting sectors.

The CS3D assessment is more nuanced. The risk-based scoping under the amended Article 8(2), the limits on information requested from smaller business partners, the five-year monitoring interval and the deleted termination requirement make due diligence more practicable without removing its risk-based structure. The thresholds adopted, more than 5,000 employees and EUR 1.5 billion in net worldwide turnover, use size as the sole criterion, excluding undertakings that exercise substantial leverage over chains of activities in high-risk sectors on grounds unrelated to that leverage.

Two further amendments concern content. The repeal of Article 22 removes an important component of the regime’s substance; since the CSRD duty to publish one survives, the enforceable content of a climate commitment is increasingly determined ex post by national courts. The deletion of Article 29(1) weakens the uniformity of the remedial framework: for cross-border groups it displaces costs rather than eliminating them.

The Directive’s approach to harmonization is correspondingly selective: Article 4(1) of the CS3D extends maximum harmonization to the central stages of due diligence because divergent national obligations would create uncertainty and unnecessary burdens, while Article 29 returns civil liability to national law on subsidiarity grounds. The Directive does not simply favor simplification over harmonization; it employs harmonization and national autonomy in different and not always easily reconcilable ways.

The reforms reveal a genuine trilemma between sustainability, simplification and harmonization. Simplification can support both sustainability and harmonization by removing duplicative disclosures, clarifying uncertain duties and preventing disproportionate demands from being passed down value chains. However, it becomes problematic when it is primarily achieved through the exclusion of regulated undertakings, the removal of substantive obligations or the renationalization of matters, as divergent national rules may recreate the very complexity that the reform is intended to reduce. The Omnibus I Directive contains examples of both types of simplification, so it cannot be characterized as merely a technical streamlining exercise or a uniform retreat from sustainable finance regulation.

The shortcomings could be addressed without reverting to the original regime, by simplifying requirements rather than excluding undertakings. Under the CSRD, differentiated mandatory regimes would have been more proportionate: the full ESRS for very large undertakings, simplified standards calibrated to size, resources and impacts for other large undertakings, voluntary reporting for SMEs and proportionate mandatory requirements for listed SMEs, reflecting the information needs associated with access to public capital markets. Under the CS3D, scope should be calibrated rather than confined: the full process for the largest companies, a lighter risk-triggered duty above the thresholds of Directive 2024/1760 and sector-based triggers for high-risk chains, as amended Article 36 expressly contemplates. The condition removed from Article 29(1) should be restored in minimal form, linking an intentional or negligent breach of Articles 10 and 11 to compensable damage while leaving damages, causation and procedure to national law; the effect of a published transition plan should be fixed ex ante; and the last-resort measures under Articles 10(6) and 11(7) should be brought within Article 4(1), since their exclusion lets Member States reinstate nationally the obligation removed.

The two forms of simplification are asymmetric: a reduction in content is reversible at low cost, since the undertakings concerned retain their systems, expertise and assurance relationships, whereas a reduction in scope is not, because those excluded will dismantle what they have built. Neither choice on scope is definitive: the Commission must report by 30 April 2031 on whether and how to extend the CSRD’s scope and whether to accompany any extension with a simplified regime, and by 26 July 2031 on the CS3D’s thresholds and high-risk sectors. Those clauses do not themselves remedy the current settlement’s shortcomings, but they provide an opportunity to move beyond an essentially quantitative conception of simplification toward a more differentiated application of proportionality. The Omnibus I Directive has achieved substantial simplification, but it has not yet struck a satisfactory balance between sustainability, simplification and harmonization.

The author’s article, ‘The Omnibus I Directive and the EU Sustainable Finance Trilemma: Sustainability, Simplification and Harmonization’, is forthcoming in 32 Columbia Journal of European Law (2026). A working paper version of the article is available here. 

Giovanni Strampelli is Full Professor of Business Law at Bocconi University.