The European Commission recently released its long-anticipated Omnibus Package, marking a significant shift in the European Union’s (EU’s) regulatory approach to sustainability reporting.
This move comes after growing pressure from businesses, particularly in energy-intensive industries, as well as political pressure from Germany and France, the EU’s two largest economies.
The Omnibus Package aims to adjust the pace of sustainability regulations, while keeping the core framework intact, as a response to concerns over regulatory burdens affecting European competitiveness.
The package proposes scaling back key Environmental, Social and Governance (ESG) regulations, particularly the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD).
While sustainability remains a priority, EU officials acknowledge that the current framework imposes significant costs on businesses, potentially undermining economic growth. But does the package mitigate real costs or delay expenses that companies will eventually incur for better business operations?
Reach out to discuss this topic in depth.
What changes?
Contrary to simplification claims, the Omnibus Package leans more towards reducing regulatory requirements. The Commission claims that businesses will save approximately €4.4 billion annually in reporting costs, with an additional one-time savings of €1.6 billion in setup costs. Key changes include:
- Reduced scope of CSRD:
- The proposal limits mandatory sustainability reporting to large companies with more than 1,000 employees and either a turnover exceeding €50 million or a balance sheet total above €25 million. This change reduces the number of companies subject to CSRD by approximately 80%, exempting many smaller firms, including listed Small and Medium-Sized enterprises (SMEs). However, voluntary reporting may still be necessary, as banks, investors, and larger business partners may require sustainability data from SMEs to meet their own disclosure obligations
- The proposal also delays the reporting requirements for companies currently within the CSRD’s scope. Businesses that were set to begin reporting in 2026 or 2027, will now have an additional two years, postponing their obligations until 2028
- Revisions to CSDDD: CSDDD now focuses mainly on a company’s direct business partners instead of the entire supply chain. Companies are no longer required to end business relationships as a last resort if issues arise either. The rules on engaging with stakeholders have been relaxed, and financial penalties for non-compliance are now more flexible, with no mandatory minimum fine
Market reception and potential Impact
The Omnibus Package remains under review and requires approval from both the European Parliament and the European Council. With support from major member states like Germany and France, the package has strong momentum toward adoption.
The revisions reflect growing pressure from businesses and policymakers to ease compliance costs, as concerns rise over Europe’s economic competitiveness compared to the U.S. and Asia.
Industry groups have also broadly welcomed the changes, citing reduced administrative burdens and increased flexibility, particularly for smaller businesses. The adjustments also respond to concerns from the U.S., where Commerce Secretary Howard Lutnick has suggested trade measures if American companies are forced to comply with EU ESG regulation.
However, sustainability advocates warn that these rollbacks could significantly weaken corporate accountability and slow progress on climate and social goals. The reduction in reporting requirements means fewer companies will be subject to ESG disclosures, limiting investor access to standardized sustainability data, while also undermining the EU’s Green Deal ambitions.
ESG crossroads: Regulatory fatigue in the EU vs. uncertainty in the US
The pushback against ESG in the EU and the US backlash can have a significant impact on the future of global sustainability agenda, though the drivers differ. In the EU, concerns center on regulatory fatigue, with businesses pushing for streamlined compliance rather than rejecting ESG outright.
The Omnibus Package reflects an attempt to balance sustainability goals with economic competitiveness and refocusing on large players. In contrast, the US faces sharper ideological divisions, with the new Federal administration dismantling ESG policies, while progressive states and cities continue as they did during the first Trump administration.
While Europe refines its ESG policies and the US remains divided, companies worldwide must navigate a shifting landscape where sustainability remains essential, but the rules and expectations around it continue to evolve.
Beyond regulation: Why sustainability still matters for business success
With sustainability facing political and regulatory uncertainty, companies are shifting from vocal commitments to more strategic, embedded sustainability practices. While public discourse on ESG may be cooling, firms continue to integrate sustainability into operations, risk management, and long-term planning.
This shift underscores that sustainability is no longer just about compliance, but also about securing resilience, market relevance, and investor confidence in an evolving business landscape. In other words, focusing on sustainability efforts that are good for business.
Key takeaways include:
- Adaptability is key: Despite shifting regulations and political debates, sustainability remains a long-term business imperative. As compliance requirements fluctuate, businesses must shift from a regulatory-driven mindset to embedding sustainability into long-term value creation, ensuring resilience amid policy shifts
- Market pressures persist: Investors, financial institutions, and consumers continue to demand ESG transparency and progress, shaping market perception and influencing access to capital. Companies that fail to align with these expectations risk reputational damage, decreased investor confidence, and weaker stakeholder trust
The Omnibus Package is a political compromise between regulatory ambitions and economic realities. While some view it as a setback for global sustainability effort, others argue that prioritizing competitiveness may ultimately lead to more sustainable long-term outcomes. Businesses that recognize the enduring importance of sustainability—beyond regulation—will be best positioned to navigate this evolving landscape and benefit the most from sustainability efforts.
If you found this blog interesting, check out our Sustainability In Engineering – How Are Companies Evolving To Achieve Their ESG Goals? | Blog – Everest Group, which delves deeper into another topic regarding ESG.
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