The European Commission’s Omnibus Proposal is being framed as a simplification of EU sustainability regulations. Announced in February 2025, the proposal introduces sweeping changes to the Corporate Sustainability Reporting Directive (CSRD), Corporate Sustainability Due Diligence Directive (CS3D), and the EU Taxonomy, aiming to ease compliance burdens, particularly for mid-sized organizations. However, realistically these changes represent a significant reduction in corporate sustainability requirements which may also delay reporting deadlines, increase compliance thresholds, and limit enforcement mechanisms, fundamentally altering how sustainability oversight is implemented across the EU.
The proposal consists of two key legislative efforts:
While the European Commission argues that these regulatory rollbacks will save approximately €6 billion in annual costs, they also reduce transparency, weaken investor confidence, and slow sustainability progress.
The Omnibus Proposal introduces significant rollbacks across three major regulatory areas:
| CSRD | CS3D | EU Taxonomy |
| Compliance deadline pushed to 2028 for Wave 2 & 3 firms | Due diligence applies to Tier 1 suppliers only | 85% of companies removed from mandatory reporting |
| 80% of firms removed from reporting requirements | Risk assessments required every five years instead of annually | Only largest firms (1,000+ employees) required to disclose sustainability data |
| Only companies with over 1,000 employees must report | Companies must create climate transition plans but are not required to implement them | Companies can omit sustainability factors unless they impact 10%+ of revenue |
Reduced access to data. The Omnibus Proposal reduces sustainability disclosures, due diligence obligations, and investment transparency across the EU. With fewer companies required to report under the CSRD and the EU Taxonomy, investors and regulators will have less access to ESG data, making risk assessments more difficult.
Shift to more voluntary actions. Ultimately, these changes shift corporate sustainability from a regulatory requirement to voluntary action, forcing businesses to reassess their ESG strategies and to determine if corporate sustainability is a critical business imperative irrespective of whether it is regulated.
Weakened supply chain oversight. By limiting CSRD due diligence to Tier 1 suppliers only, the proposal weakens supply chain oversight, increasing environmental and human safety, workplace and other risks. The removal of EU-wide enforcement also shifts compliance to individual member states, creating inconsistent regulations across jurisdictions.
Continued high performance expectations. The Omnibus Proposal is not final and is likely to change, making regulatory uncertainty a key challenge for businesses. Despite these changes, investor and market expectations remain high and sustainability as a part of business performance cannot be ignored.
Increased risk of greenwashing. In sustainable finance, weakened Taxonomy reporting and a 10% materiality threshold allow companies to omit key sustainability factors, raising the risk of “greenwashing” or the use of deceptive advertising and marketing to give the appearance of environmentally friendly products and services, which in turn reduces investor confidence.
Short-sighted business decisions. With EU-wide enforcement weakened, companies face inconsistent compliance obligations across member states. However, the broader Omnibus Proposal is still under negotiation until at least 2026. While future policy shifts are likely, businesses that expect long-term deregulation may risk being unprepared for future regulatory reversals.
Despite reduced mandates, the time is still now to prepare. We anticipate investors will still expect ESG transparency if not solely for regulatory purpose, then for risk management and ultimately, for continued business performance reasons. Companies that fail to maintain voluntary reporting could face weaker stakeholder trust and limited access to sustainable finance.
In support of our view, leaders from across the accounting industry signal that despite certain regulations being pushed out to 2026 and beyond, reporting will require data from 2025. Firms that delay may find themselves scrambling to retroactively collect data, which is often more costly and less accurate.
Furthermore, commentary from the accounting industry suggests that ESG compliance reporting is akin to financial statement audits, only with other key measures like greenhouse gas emissions vs financial statement data. This shift means ESG reporting is no longer just a communications exercise, it is becoming a rigorously governed process subject to assurance and scrutiny. In this sense it is like a new accounting standard. Notably, there has been a consistent increase in the citing of climate related risk in public company filings, whether business loss and claims or other business impacts. The collection of data surrounding these risks will be key to making informed strategic business decisions impacting company growth and sustainability.
ESG Supply Chain Resilience
Our manufacturing client was in the process of addressing gaps in CSRD compliance and reporting. In building out their scenario analysis, the Company uncovered climate related supply chain vulnerabilities that could have led to fulfillment disruptions. The scenario analysis uncovered potential risks that the company would not have otherwise identified, which they then acted upon to safeguard against.
Enhanced Operational Efficiency Through ESG Compliance Efforts
To ensure compliance with sustainability regulations, our client, a manufacturing company began to identify and track all sources of energy usage, including within their manufacturing facilities. By taking proactive measures to ensure compliance, the Company began collecting energy usage and consumption data. Through this exercise, the company was able to identify operational efficiencies, which led to reduced overall consumption and cost savings.
Streamlined Data Management to Fulfill the Requirements of CSRD Reporting
To be compliant with CSRD regulations, our client was required to collect data from over 600 locations. This tedious, time-consuming process added little value. Automating the data collection process not only reduced error and provided more security but it also enabled the Company’s sustainability team to focus on strategic initiatives and perform more value-add tasks.
Today’s most prominent companies are continuing to take proactive measures including: