The European Union is pressing pause on some of its most ambitious sustainability regulations. Through the Omnibus Regulation, the European Commission is scaling back and delaying key provisions of the Corporate Sustainability Reporting Directive and the Corporate Sustainability Due Diligence Directive, along with adjustments to the EU Taxonomy and Carbon Border Adjustment Mechanism.
The official rationale is simplification. But the impact is more sweeping: the number of companies in scope for CSRD reporting will fall by approximately 85%, and many of CSDDD’s stricter requirements around value chain enforcement and civil liability have been removed or watered down. What was once a far-reaching architecture for embedding sustainability into corporate reporting and governance is now being reworked midstream.
So, what’s actually changed, what comes next and how should companies respond?
What’s changed?
The most immediate change is a two-year delay for CSRD implementation for companies that haven’t yet started reporting. This means many mid-sized firms will now begin disclosures from FY2026 instead of FY2024. In parallel, the CSDDD’s transposition deadline has been pushed back by one year, giving member states more time to integrate it into national law.
The European Commission has also tasked the European Financial Reporting Advisory Group with simplifying the European Sustainability Reporting Standards.
The revised ESRS are due from EFRAG by 31 October 2025 and will be implemented via delegated act within six months of the final Omnibus text. Companies will be allowed to use the revised ESRS for FY2026 and required to use them from FY2027 onward.
What’s next?
The ‘stop-the-clock’ provisions were approved by the European Council and endorsed by the Parliament under urgent procedure. A final vote is set for 3 April. If approved, trilogues between Parliament, Council and Commission will begin shortly thereafter to finalise the legal text.
Despite the rapid pace of change, key elements remain unsettled. The European Parliament’s initial vote on the proposal passed resoundingly, but divisions among parties remain. Some member states have pushed hard for fast adoption to provide legal clarity for businesses, but others remain wary of the broader implications of weakening EU leadership on sustainable finance.
What it means for business
In the short term, the Omnibus offers breathing room for many companies. For firms not yet in scope, the CSRD delay may provide much-needed time to prepare systems, gather data and align internal teams. The expected reduction in datapoints and clearer materiality guidance could also reduce compliance costs and make the reporting process more usable.
But the longer-term implications are more complex.
First, the delay risks setting back progress on sustainability data quality and comparability. This weakens not just regulatory oversight, but investor and market ability to assess and price sustainability risks. Second, businesses operating globally may still need to report to other frameworks such as the International Sustainability Standards Board, which remain in force and are quickly gaining traction.
Third, the underlying rationale for these regulations hasn’t changed. Climate and nature-related risks are accelerating. Regulatory alignment, forward-looking planning and robust disclosures remain essential. Weakening standards or delaying implementation may create short-term flexibility, but it also increases long-term uncertainty and the risk of fragmented compliance obligations down the line.
Ultimately, this is also a story of process failure. Had the EU initially launched these sustainability frameworks as a single, coherent package with clear sequencing, technical guidance and regulatory alignment progress might be further along today. Instead, the attempt to correct course mid-flight may leave both companies and regulators navigating greater complexity.
The Omnibus is more than a technical reversal – it reflects deeper questions about Europe’s strategy on sustainable finance. Whether this is a pause to build smarter or a backslide that undercuts ambition will depend on the final text and what follows. For businesses, the imperative remains clear: understand the rules, track what’s changing and prepare not just for compliance, but for resilience in a world that still expects, and requires, sustainability.
David Carlin was Head of Risk at the United Nations Environment Programme’s Finance Initiative and co-founder of UNEP FI’s Risk Centre. He now advises governments and business leaders on strategies for thriving in a changing world.
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