ESG after the Omnibus Proposal: Regulations market forces, and climate risk

Sustainability reporting in 2025 is entering a new phase. What was once treated as a voluntary ESG initiative is now subject to legal obligations, enforcement risk, and third-party assurance. For many companies, the question is no longer whether to report — but how to navigate a regulatory environment that is simultaneously tightening and being reformed.

This article explains the current state of ESG regulation in Europe, what the Omnibus proposal changes, and how market forces are reshaping sustainability reporting regardless of what regulators do.

The regulatory baseline: where we are

The EU has built the most comprehensive corporate sustainability reporting framework in the world. The Corporate Sustainability Reporting Directive (CSRD) requires large companies to publish detailed sustainability statements aligned with the European Sustainability Reporting Standards (ESRS) and subject to limited assurance. The Corporate Sustainability Due Diligence Directive (CSDDD) requires companies to identify and address human rights and environmental impacts across their value chains. These two directives together create a comprehensive framework for corporate accountability on sustainability.

But in early 2026, the European Commission's Omnibus proposal introduced significant changes to this framework. The proposal narrows the scope of both CSRD and CSDDD, reduces mandatory data points by roughly 70%, delays timelines for Wave 2 and 3 companies, and simplifies due diligence requirements.

What the Omnibus proposal changes

The EU Omnibus proposal is the most significant rewrite of EU sustainability regulation since CSRD was adopted. Key changes include:

• Narrower scope: The employee threshold for CSRD rises from 250 to 1,000, removing roughly 85% of previously in-scope companies
• Reduced data points: Mandatory ESRS data points fall from over 1,000 to approximately 320
• Timeline delays: Wave 2 companies now report from FY2027 (two-year delay); Wave 3 further delayed
• Simplified due diligence: CSDDD audit requirements reduced; value chain scope narrowed

The Omnibus is not yet final law — it requires European Parliament and Council approval and may be amended. But its direction signals a political priority shift toward competitiveness and reducing regulatory burden.

Market forces are not following the political calendar

Here's the tension: while regulators are scaling back formal requirements, market forces are pushing sustainability reporting in the opposite direction.

Enterprise buyers are embedding Scope 3 emissions into procurement. Major asset managers are integrating ESG into investment processes. Banks are running climate risk assessments on loan portfolios. These market mechanisms operate independently of whether CSRD is in force for a given company.

Companies outside formal CSRD scope are increasingly being asked for VSME-level data by their supply chain customers who are in scope. The practical result: sustainability reporting is becoming a de facto business requirement even for companies that are legally exempt.

Climate risk is not on pause

Physical climate risks — floods, droughts, heat stress, supply chain disruption — are intensifying regardless of regulatory timelines. The financial case for understanding and managing climate exposure has never been stronger. Companies that have built internal sustainability management capability will be better positioned to navigate these risks, independent of what they are required to disclose.

What companies should do now

The practical implication of this environment is clear: continue building sustainability management capability even if formal reporting obligations are delayed or reduced. The data, processes, and governance structures you build for CSRD preparation have value beyond compliance — they give you visibility into your own risk exposure, credibility with customers and investors, and operational resilience.

For companies navigating this landscape, see our guide on what CSRD under Omnibus means for your organization and the broader context on CSRD regulation explained.