How European ESG Regulations Impact Businesses in 2025
Simplification can be anything but simple, particularly when sustainability regulations impacting around 50,000 European companies are at stake. The year 2025 has brought a lot of change, and some pushback, to the table.
The European Commission’s Omnibus Simplification Package was introduced in response to concerns over complex sustainability regulation, but the resulting turbulence could have caused further complexity. The first draft was released in February 2025 after business and political leaders called for reductions in regulatory and reporting burdens, particularly for SMEs.
Saskia van Gendt, Chief Sustainability Officer at Blue Yonder, says: “Some view this as a step back from transparency, but I see it as a necessary recalibration.
“Sustainability teams are increasingly stretched, spending disproportionate time on compliance rather than impact. The omnibus gives companies, especially SMEs, breathing room to focus on initiatives that actually drive environmental and social progress.”
Read the full story in the August 2025 edition of Sustainability Magazine.
What could the omnibus change?
The omnibus primarily impacts the Corporate Sustainability Reporting Directive (CSRD), Corporate Sustainability Due Diligence Directive (CSDDD), EU Taxonomy Regulation and the Carbon Border Adjustment Mechanism (CBAM).
Saskia says: “By shifting away from one-size-fits-all requirements, the Directive still maintains accountability where it matters most. Larger companies responsible for the bulk of emissions and equipped with greater resources remain within scope. In contrast, SMEs, which account for a smaller share of emissions, get space to innovate and adapt.”
CSRD
The proposed changes would reduce the number of companies required to report under the CSRD by about 80%. New thresholds would primarily apply to companies with more than 1,000 employees and either a turnover above €50m (US$58.4m) or balance sheet total above €25m (US$29.2m).
Non-EU parent companies must now have at least €450m (US$526m) in EU turnover and a significant presence in the area to fall under CSRD requirements.
Its postponement, or “stop-the-clock”, mechanism also delays reporting deadlines for companies in waves two and three by two years to 2028. This mechanism has been approved outside of the wider omnibus proposition.
“Amid the ongoing debate around the omnibus, a simple fact remains: good data is good for business.”
CSDDD
Implementation timelines for the CSDDD have also been delayed, giving member states until July 2027 to transpose it into national law and the first group of large companies set for compliance in July 2028.
The scope is also set to be narrowed to direct suppliers and contractors, replacing the requirement to map the entire value chain with a risk-based approach. Thresholds for applicability would also rise to only cover EU companies with more than 1,000 employees and €450m (US$526m) in turnover.
Reviews would be required once every five years instead of annually and the requirement to implement transition plans would be dropped.
Liability and enforcement may also be weakened with the requirement for an EU-wide civil liability system and minimum penalty of 5% of global turnover removed. Member states allowing trade unions and NGOs to bring claims on behalf of third parties may also be eliminated.
EU Taxonomy
The omnibus would reduce the scope for mandatory reporting under the EU Taxonomy and allow large companies outside of the scope to opt in and report voluntarily.
These changes would also allow companies to excuse economic activities that are not financially material using a 10% de minimis threshold. Below this threshold, activities would not need to be assessed against the technical screening criteria.
The number of required data points would be reduced by roughly 70% and reporting templates streamlined through removing the need to separately report activities aligning with different Taxonomy objectives.
CBAM
The di minimis threshold of CBAM would be replaced with a mass-based annual threshold of 50 tonnes per importer per type of CBAM-covered goods. This is designed to ensure 99% of embedded emissions remain within scope while exempting around 90% of current importers from obligations.
CBAM certificates required to be purchased in advance each quarter would be reduced from 80% to 50% of embedded emissions and the limit for repurchasing certificates changes from one third of the total purchased in a calendar year to 50% of CBAM liability for the year.
Importers could also reduce their CBAM liability based on carbon costs paid in third countries instead of just in the country of origin.
Opposition to the omnibus
Changing rules in ways that impact such a significant volume of companies has caused some confusion and faced criticism.
“Some view this as a step back from transparency, but I see it as a necessary recalibration.”
A group of 11 major global organisations including DP World, Ferrero, L'Occitane, Mars, Nestlé, Primark, Signify and Unilever wrote to the European Commission in January 2025, urging it not to weaken existing sustainability reporting standards.
More than 200 organisations issued an open letter in July 2025 warning policymakers against diluting the bloc’s sustainability framework. Signatories of the letter include ESF, Signify, Ingka Group, Vattenfall, Nokia and Allianz. It calls on EU policymakers to:
- Retain double materiality reporting across all ESG topics and ensure alignment with international standards (GRI, ISSB, TNFD)
- Maintain a meaningful CSRD scope covering companies with 500+ employees
- Preserve value chain transparency beyond the proposed cap, which would limit reporting to standards designed for micro and small businesses
- Require credible climate transition plans
- Enforce risk-based due diligence under the CSDDD.
Sophie Graham, Chief Sustainability Officer at IFS, feels that businesses should “leave the debating to the politicians”.
“Amid the ongoing debate around the omnibus, a simple fact remains: good data is good for business,” she says.
“A better handle on data is what enables sustainability to be managed as a strategic corporate initiative, with a focus on delivering value, driving efficiencies, creating accountability and integrating into decision-making across functions.
“The organisations who stand out from the crowd will be those who already have agile foundations.”
“It’s worth noting that in the omnibus proposed changes, two factors that have held steady are the focus on the quality of the data and the relevance to business performance. Companies still need to perform a double materiality assessment to identify their most relevant sustainability topics to manage and disclose, as well as externally assure the data they report.”
How companies can cope with changing regulations
When regulations keep changing, it can be hard for businesses to keep up. Investing in technology and automation that brings sustainability data to the same level of finance, alongside integrating ESG in core business strategy, could help businesses to stay agile.
Mark Wilkinson, OpenText's SVP for the Global Business Network, says: “Where ESG is concerned, proactivity is pivotal to business success. As we see an increase in sustainability focused regulation, with expectations set by the EU’s CSRD, the organisations who stand out from the crowd will be those who already have agile foundations.
“For example, reporting solutions will need access to consistent company data, and automation will be crucial to a successful sustainability strategy. This has been highlighted by the widespread adoption of automation driven by sustainability initiatives in recent years.
“Through embracing AI’s capabilities, optimising agile data foundations and embracing automation, companies can ensure they remain prepared in the face of increasing regulations.”
Sophie feels similarly: “Despite the regulatory changes, investments in technology to improve sustainability data are delivering proven business value. Technological advancements, particularly in AI and machine learning, have significantly streamlined ESG data reporting for companies.
“By automating manual, challenging processes around sustainability data collation, businesses are able to repurpose Sustainability teams away from data-gathering and reporting towards strategy, using insights from this data.”
Read the full story in the August 2025 edition of Sustainability Magazine.
