The EU’s Omnibus Proposal: A Crucial Development in Sustainability Malaysia Has Overlooked

A major development in European sustainability regulations is unfolding, yet it has barely registered in Malaysia’s public and business discourse. The European Commission’s “Simplification Omnibus” proposal, introduced on 26^th February 2025, has sparked intense discussions across Europe, drawing reactions from industry leaders, policymakers, and sustainability advocates. However, in Malaysia – despite our deep trade ties with the EU – there has been little engagement with the topic. Above all, as of 1 March 2025, newspapers don’t even seem to have reported on the Omnibus proposal.

The Omnibus proposal seeks to ease the regulatory burden on European businesses, particularly regarding sustainability reporting and corporate due diligence obligations. The EU Commission estimates that this would lead to administrative relief exceeding EUR 6 billion (approx. MYR 27.7 billion).

While the proposal signals a possible shift in Europe’s regulatory landscape, it is important to note that these changes are not yet law. The proposal still requires approval from both the European Parliament and the Council of the EU, a process that would in any event take multiple months and may involve significant modifications or even outright rejection. Importantly, if no agreement is reached, the current, stricter sustainability rules will remain in force.

What Would the Proposal Change?

If approved, the Omnibus would introduce several adjustments to the EU’s sustainability framework. The main changes include:

• Corporate Sustainability Reporting Directive (CSRD) – fewer companies would be required to submit detailed sustainability reports, as the employee threshold for reporting obligations would increase.
• Corporate Sustainability Due Diligence Directive (CSDDD) – instead of requiring companies to conduct full supply chain monitoring, the proposal limits obligations to direct suppliers and reduces the frequency of assessments.
• Carbon Border Adjustment Mechanism (CBAM) –importers importing less than 50 metric tons per year would be exempted from carbon border taxes, reducing costs for certain businesses.

As mentioned above, the proposed changes are designed to reduce the administrative burden on European companies, while maintaining the EU’s green transition goals. However, it is important to note that the proposal does not affect all sustainability regulations. Most notably, the EU Deforestation Regulation (EUDR) remains fully intact.

What Is the Likely Timeline?

The proposal is still at the discussion stage and must go through the EU’s legislative approval process, which includes:

1. Review by the Council of the European Union and the European Parliament:
   • The Council and the Parliament will review the proposal and may introduce amendments.
   • If the two bodies disagree, they will enter trilogues (negotiation rounds) with the European Commission to finalize a compromise.
   • This will likely happen in Q2-Q3 2025.
2. Final Vote:
   • We do not foresee the final vote to take place before late 2025/early 2026.
3. If No Agreement Is Reached?
   • If the Council, Parliament and Commission fail to reach a consensus, the existing rules will remain in force.
   • This means European companies will still have to comply with the original CSRD, CSDDD, and CBAM requirements, and companies in their supply chains – including those in Malaysia – will remain under strict sustainability scrutiny.

The EU Deforestation Regulation (EUDR) Remains Unchanged

While much of the debate surrounding the Omnibus proposal focuses on relaxing sustainability rules, one of the most impactful EU regulations for Malaysia – the EU Deforestation Regulation (EUDR) – remains fully in force. Companies from Malaysia exporting palm oil, rubber and timber, as well as many products made from these raw materials (e.g. gloves, tires, automative parts), will thus still need to show compliance in order to be considered by European purchasers.

As was widely reported at the end of 2024, the EUDR was postponed by one year and will become applicable from 30 December 2025. In December 2025, a proposal to loosen the stringent requirements contained in the EUDR was rejected by the EU’s policymakers and it appears very unlikely that any further changes to the EUDR can be made at this point. The EUDR is thus moving ahead without delays or amendments.

What Malaysian Businesses Should Do

The European Union remains one of Malaysia’s most important trading partners and receives multiple billions of Ringgits in investment from the European Union every year. Many Malaysian companies form part of European companies’ supply chains and are thus at least indirectly affected by possible changes to key sustainability laws in Europe.

Here are steps which Malaysian companies should take:

1. Continue sustainability efforts
   • It is important to remember that the Omnibus proposal is what it is: a proposal. It may take months or even years to be finalized.
   • If the EU institutions fail to reach a compromise, all existing sustainability regulations will remain in force, meaning companies that assume regulatory easing may face severe compliance risks.
   • Many European companies will proceed on the basis that there will not be any change in law or voluntarily comply with stricter requirements.
2. Monitor EUDR compliance closely
   • Even if the Omnibus were passed, the EUDR remains unchanged.
   • Malaysian exporters of palm oil, rubber, timber and many products made therefore should ensure that they have traceability systems in place and are working toward full compliance before the December 2025 deadline.
   • While there is lots of talk in Malaysia about geolocation and traceability, the biggest obstacle for Malaysian companies affected by the EUDR will be showing compliance with the eight core areas of law set forth in the EUDR, from environmental protection to human rights protected under international law.
3. Stay engaged with your customers from the EU
   • It is important to recall that all EU legislation only applies to EU companies. They are the ones which must meet the relevant standards and requirements.
   • Ultimately, Malaysian companies will be able to keep exporting their products to the European Union if they meet their customers’ requirements – whether more stringent or less stringent. Malaysian companies should therefore engage with their customers from the EU to best understand how they can facilitate the administrative burden that comes with showing sustainability compliance.
   • In other words: a company which makes it “easier” for its customers will stay relevant and may even be able to sell at higher prices.

Conclusion

While the Omnibus proposal may ease certain corporate sustainability requirements, it does not impact the EUDR, which remains the biggest regulatory challenge for Malaysia. If the Council and Parliament fail to approve the Omnibus proposal, all existing rules will remain in place – meaning Malaysian companies should not delay their sustainability compliance efforts.

Ignoring these developments would be a costly mistake, as access to the EU market increasingly depends on meeting stringent environmental and supply chain due diligence standards.

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