EU Green Deal Simplification: What the Omnibus Package Really Means for Climate Policy

The European Commission has taken a significant step in reshaping how it governs sustainability — and the move is already sparking debate. Through its so-called Omnibus package, the Commission is rolling back environmental reporting requirements and due diligence obligations for all but the largest companies in the EU. Supporters call it a necessary recalibration. Critics worry it signals a quiet retreat from the ambitions of the EU Green Deal.

So what exactly is changing, what remains intact, and what does this mean for the future of climate policy in Europe?

What the Omnibus Package Actually Changes

At the heart of the reform is a significant narrowing of scope for two landmark pieces of environmental regulation: the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD). Under the revised framework, only the very largest companies — those with over 1,000 employees and significant turnover — will remain subject to full sustainability reporting and supply chain due diligence requirements on human rights abuses.

This exempts a vast majority of mid-sized European businesses from obligations that, until recently, were being phased in across the corporate landscape. The Commission frames this as reducing administrative burden during a period of sluggish economic growth and mounting political pressure from industry lobbies. The stated goal is not to abandon Green Deal targets, but to make compliance more manageable and the data produced more usable — a subtle but important distinction.

According to analysis from A&O Shearman’s Sustainability Outlook 2026, the recalibration is designed to stabilise the regulatory environment and restore business confidence in long-term green investment, rather than dismantle the architecture of the Green Deal itself.

What Stays the Course: Carbon Markets, CBAM, and Industrial Strategy

Despite the softening on reporting rules, the EU’s core decarbonisation machinery is pressing forward. The Emissions Trading System (ETS) has been expanded to cover buildings and road transport, and is now generating over €200 billion for green transition funds — a figure that underlines how central carbon pricing remains to EU climate strategy.

The Carbon Border Adjustment Mechanism (CBAM) is on track for full operation by 2026, designed to prevent carbon leakage by pricing imports from countries with weaker climate policy frameworks. This is a cornerstone of the EU’s push for green industrial competitiveness — ensuring that European manufacturers decarbonising under strict rules are not undercut by cheaper, carbon-intensive imports from abroad.

Simultaneously, the Critical Raw Materials Act and the Net-Zero Industry Act are advancing, with targets to secure EU-based extraction and processing of strategic materials by 2030. These measures support clean technology manufacturing — from batteries to green hydrogen — and reflect Europe’s determination to compete with the United States and China in the global clean energy race.

The revision of the Energy Taxation Directive under the ‘Fit for 55’ framework is also progressing, aiming to align tax incentives with renewables deployment across the single market.

The Risks: Equity, Accountability, and Global Signals

The Omnibus reforms are not without controversy. Reducing the scope of sustainability reporting raises legitimate concerns about corporate accountability — particularly regarding supply chains in the Global South, where labour rights and environmental protections are often weakest. If fewer companies are required to report on due diligence, transparency in these areas could diminish significantly.

There are also broader geopolitical implications. At a moment when the EU positions itself as a global leader in environmental regulation and climate governance, scaling back obligations — even selectively — risks sending a mixed message to trading partners and international climate negotiations.

• Emissions targets remain unchanged: The EU still commits to 55% reductions by 2030 and up to 90% by 2040.
• Reporting thresholds are rising: Fewer companies will be required to disclose sustainability data under revised CSRD scope.
• CBAM and ETS remain robust: Carbon market mechanisms are expanding, not contracting.
• Industrial policy is accelerating: Clean tech and raw materials strategies signal long-term commitment to green competitiveness.

Key Takeaway

The EU’s Omnibus package represents a genuine tension at the heart of European climate governance: the need to maintain regulatory ambition while responding to economic realities and political headwinds. The Commission is betting that a leaner, more targeted approach to sustainability reporting can coexist with robust carbon markets and industrial strategy. Whether that bet pays off — for the climate, for businesses, and for the communities most exposed to environmental risk — will depend on how rigorously the remaining obligations are enforced, and how seriously the EU takes the equity dimensions of its green transition.