The European Commission's Omnibus proposal aims to simplify corporate sustainability regulations, but beneath the surface, these adjustments could significantly reshape reporting requirements, due diligence processes, and ESG risk management. With evolving legal landscapes, companies must stay ahead of the changes and strategically position themselves for compliance and long-term sustainability success.
Legal Adjustments: Simplification or Rollback?
One of the key developments in the Omnibus proposal is the shift in legal responsibilities. While some changes appear to be simplifications, others raise concerns about regulatory rollbacks. There is now a greater emphasis on, for example, Tier 1 suppliers, meaning that companies may not need to conduct as much due diligence on indirect suppliers further down the value chain. Additionally, stakeholder consultation requirements have been reduced, which could limit the input from affected communities and civil society organizations. Another major change is the elimination of civil liability provisions, which may make it harder for impacted parties to hold companies accountable for sustainability-related harms.
Changing Scope of Sustainability Reporting
The scope of mandatory sustainability reporting is also changing. Companies with fewer than 1,000 employees could potentially be exempt from reporting requirements under the revised framework. However, the duty of care remains in place, meaning that if credible evidence emerges of deeper negative impacts beyond Tier 1 suppliers, companies may still be required to take action. Despite some relaxation in reporting obligations, elements like climate transition plans covering Scopes 1, 2, and 3 emissions remain mandatory, although the requirements to demonstrate implementation might be loosened.
Impact on Different Companies
These regulatory shifts will impact companies differently, depending on their reporting wave. The first wave, consisting of companies required to report in 2025, must continue following the existing Corporate Sustainability Reporting Directive (CSRD) framework until national legislation is updated, which could take up to two years. After that, they will need to reassess whether they still meet the reporting threshold and, if so, align with the updated European Sustainability Reporting Standards (ESRS). The second wave, with companies reporting in 2026, may see an extension of their deadline to 2028, along with potential simplifications in reporting. If the revised scope applies to them, they will transition to the new ESRS requirements once they are finalized. However, even if some companies find themselves exempt from mandatory reporting, it remains essential to continue data collection, as business partners, investors, and financial institutions may still require ESG information.
For listed SMEs, the regulatory landscape is particularly uncertain. The Omnibus proposal suggests that they may no longer be obligated to report under the LSME framework. However, larger corporate partners may still demand sustainability data to meet their own compliance requirements. In response, a voluntary, simplified VSME standard could emerge as a new industry norm, ensuring that SMEs maintain strong relationships with major enterprises while reducing their reporting burden.
Key Actions for Businesses
With regulatory uncertainty ahead, businesses must take proactive steps to safeguard their sustainability commitments. First and foremost, companies should maintain their current reporting practices, as national sustainability laws remain in effect until officially amended. It is critical to avoid premature reductions in compliance efforts, as legal adjustments could take years to finalize. Additionally, ESG risk assessment should remain a priority. Even though the rules have been narrowed, sustainability risks in extended supply chains have not disappeared, and companies must remain vigilant in monitoring their impact.
Another crucial action is preserving stakeholder dialogue. While formal consultation requirements may be reduced, voluntary engagement with stakeholders remains a powerful tool for identifying emerging ESG topics and maintaining corporate responsibility. Companies should also consider redeploying resources strategically. If reporting obligations become less demanding, businesses should reallocate efforts toward strengthening risk management frameworks and developing more sophisticated sustainability metrics that provide deeper insights into their environmental and social impact.
The Importance of Staying Committed to Sustainability
Regardless of any legal rollbacks, staying committed to sustainability is more important than ever. A strong ESG strategy remains a key competitive advantage, strengthening brand reputation, investor confidence, and long-term resilience. While the Omnibus proposal signals regulatory shifts, it does not change the fact that businesses operate in a world increasingly driven by sustainability expectations. Companies that remain proactive, agile, and well-prepared for future regulations will be better positioned to navigate evolving compliance landscapes and sustain meaningful impact in the long run.
