Last updated: 01 Dec 2025 10:00 Posted in: Sustainability
The EU Omnibus aims to simplify sustainability regulations by reducing reporting obligations. Sunita Devi raises the concerns about excluding many firms from critical disclosures.
The EU Omnibus: a summary
On 26 February 2025, the European Commission adopted the EU Omnibus, a legislative package aimed at streamlining and simplifying the bloc’s sustainability and investment regulations. Framed as a response to industry concerns about regulatory complexity and cost, the Omnibus makes sweeping adjustments to cornerstone instruments such as the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), the EU Taxonomy Regulation, and even elements of the Carbon Border Adjustment Mechanism (CBAM).
The Commission’s rationale is clear: reducing administrative burdens, especially for small and medium-sized enterprises (SMEs), and making the EU a more attractive environment for business and investment. Yet behind these cost savings lies a dramatic narrowing of scope that critics argue could undermine the EU’s climate and sustainability commitments.
Perhaps the most consequential change is the reduction in the number of firms subject to reporting obligations. Under the Omnibus, nearly 80% of small companies are effectively removed as data points for sustainability and risk disclosures. New thresholds mean that only the largest corporations – those exceeding 1,000 employees and higher revenue or balance sheet limits – remain fully within scope of the CSRD and related frameworks.
While the Commission frames the Omnibus as a pragmatic balance between competitiveness and sustainability, critics see it as a step backward. Simplification in practice means narrower scope, weaker assurance and delayed obligations, all of which dilute transparency and accountability. In essence, the EU Omnibus shifts sustainability regulation from being a broad, ambitious framework to a selective package that spares many firms from meaningful scrutiny.
In my previous article, ‘Net Zero is Risky Business’ (September 2024), I emphasised the urgency of moving forward in the race to achieve Net Zero. At the same time, I highlighted the importance of addressing loopholes in standardised emission factors – critical for ensuring the accuracy of carbon footprint disclosures – as well as gaps in voluntary approaches to capital market regulations. By examining these issues, that article aimed to support the adoption of credible Net Zero pathways, while also giving space to the perspectives of sceptics.
In this article, I take a critical look at the rationale behind the EU Omnibus and the regulators’ leniency on sustainability – particularly troubling at a time of growing climate anger. If we all acknowledge that the climate crisis is real, then the EU Omnibus should never have been allowed to happen.
Climate-related loss
Climate-related loss is real. Regulatory leniency only delays meaningful action to reduce these losses. Extending deadlines or backsliding cannot be considered progress toward easing the planet’s rising ‘fever’ or averting looming catastrophes. The EU Omnibus, introduced as a simplification package by the European Commission, aims to reduce administrative burdens by 25% for all businesses and 35% for SMEs.
Let’s begin by looking at this from two distinct perspectives. First, regulations help to reduce financial risk. Second, they encourage and shape responsible corporate behaviour.
Reducing financial risk
From a capitalist perspective, the EU Omnibus has led to the removal of nearly 80% of small companies as granular data points for assessing financial risk. Transition financing continues to be heavily promoted, while central banks focus on regulating risk reduction tied to financed emissions. But now, with global financial institutions unable to access detailed data from almost 80% of companies, a pressing question arises: what is the true scale of financial risk?
By pushing deadlines closer to 2030, several critical questions arise:
The planet – and all of us living on it – are facing ongoing pollution of the air, oceans and natural environment. These chronic physical risks are already harming human health. Is global heating slowing down? No. Temperatures continue to rise, and weather patterns are shifting with greater frequency and intensity.
‘Transitioning in a pragmatic way’ should not imply that pragmatism applies only to large companies. After all, when an earthquake or tsunami strikes, it does not spare small businesses while targeting only big ones.
If a financial institution fails to measure its financed emissions across all seven asset classes using the Partnership for Carbon Accounting Financials (PCAF) Guidelines, a single earthquake could potentially wipe out investment returns across its entire portfolio. How, then, can the new EU rule claim to enhance competitiveness and attract investment if one disaster is enough to erase value across all asset classes?
On 26 February 2025, the European Commission adopted this legislation, creating ripple effects across other capital markets. For example, on 25 August 2025, the Singapore Stock Exchange announced extended timelines for most climate reporting requirements. Regulations are meant to align corporate behaviour with governance principles such as ‘Comply or Explain’, fostering accountability and responsibility. But with leniency packages like the EU Omnibus, are regulations instead condoning responsibility avoidance for several years?
Responsible corporate behaviour
From the second perspective – promoting corporate behaviour – the EU Omnibus should have clearly outlined the intended outcomes of scaling back assurance from a ‘reasonable’ level to only a ‘limited’ level in the near future.
Obtaining assurance for sustainability reporting means reviewing material risk factors and verifying evidence to determine whether an organisation and its management have adopted the correct methodologies to minimise those risks.
There are two key levels of assurance:
The EU Omnibus has simplified this requirement by mandating only limited assurance, with no plan to move toward the more rigorous reasonable assurance in the future. But is there a rational explanation for this decision? Regardless of whether a company is small or large, management needs clear recommendations and defined timelines to ensure accountability. Leniency in this area does not demonstrate strong regulatory governance.
Global supply chains
A third aspect that the EU Omnibus failed to consider is the role of global supply chains and conglomerates operating within the EU. Many SMEs are based in high-risk countries with weaker regulatory frameworks.
These firms rely on alignment with their larger customers to ensure that their sustainability objectives are integrated and streamlined alongside those of global corporations. However, depending on revenue thresholds, many of these supply chain companies are excluded from reporting mandates. As a result, they are effectively operating ‘blind’.
Including supply chains within structured due diligence requirements enables smaller firms to identify the material risks in their own operations that could impact their global customers. This is particularly important in emerging markets, where issues such as foreign labour practices and human rights concerns often arise. Without such measures, the rollback of compliance standards by corporates in developed nations only increases these risks.
Sustainability reporting
From the perspective of sustainability reporting standards, the EU Omnibus rule only further muddies an already complex landscape instead of providing clarity. Simplifying existing sustainability reporting standards does not support either corporates or their supply chains.
Since 2000, the Global Reporting Initiative (GRI) standards have provided a well-established framework, helping companies to identify potential ESG risks through its 32 to 34 sustainability standards. Other frameworks – whether the SGX ESG Core Metrics, the European Sustainability Reporting Standards (ESRS), or even the recently phased-out TCFD (now replaced by IFRS S1 and S2) – all draw heavily from the GRI compendium.
So what, then, is the purpose of simplifying ESG reporting standards? The criteria have already been defined, the data points earmarked, and the justifications for reporting made clear. Diluting this structure does not move companies closer to meaningful accountability.
In conclusion
In conclusion, the EU Omnibus – and other regulators supporting these modifications – argue that the changes will reduce administrative costs by approximately €4.4 billion annually. The same report highlights expectations of immediate financial relief, including one-off savings of about €1.6 billion for firms exempted under the Corporate Sustainability Reporting Directive (CSRD) assurance and European Sustainability Reporting Standards (ESRS); and another €0.9 billion related to taxonomy requirements.
But has this anticipated financial relief been weighed against the potential long-term losses? Both the European Central Bank and the UN PRI investors network have warned that the EU Omnibus reduces the availability of firm-level data, undermining the ability to perform granular risk assessments critical to managing climate-related financial risks.
Any delay in decarbonisation progress jeopardises governments’ ability to protect citizens, corporates’ ability to protect profits and, ultimately, society’s ability to endure.
Often, resistance to regulation is driven by false fears – such as high upfront investment costs, rising prices or concerns about competitiveness. Yet these reflect corporate insecurities rather than systemic realities.
Meanwhile, cash-rich ‘sin sectors’ – such as mining, oil, gas and coal – remain major risk drivers. Addressing this requires bold compliance and stronger negative screening practices from financial institutions, ensuring that such sectors are excluded from portfolios.
Resisting change comes with political stigma. When resistance originates from regulators and governments, corporates are left without direction, and people are left without protection. Net Zero may be risky – but the answer is not to stop.
Calculate the risk. Manage it. But don’t stop now.
Author Bio
Sunita Devi
Sustainability Reporting Specialist
Devcom Trends
"The EU Omnibus reduces the availability of firm-level data, undermining the ability to perform granular risk assessments"
Sunita Devi
Sustainability Reporting Specialist
Devcom Trends