Less Regulation, but Environmental Risks Still Dominate

written by: Katarina Kulić, Climate Change and Sustainability Manager at Deloitte; David Dobrinić, Senior Advisor for Climate Change and Sustainability at Deloitte

The end of last year finally brought a resolution to key uncertainties regarding changes to the EU regulatory framework for sustainability reporting. In February 2025, the European Commission presented the Omnibus package, a plan to simplify a range of sustainability regulations to reduce administrative burdens and strengthen the competitiveness of European companies. After months of negotiations within EU institutions, accompanied by intense discussions and various stakeholder demands, the new rules were finally agreed upon and officially confirmed in December of last year. Thus, the period of regulatory uncertainty ended, replaced by the crucial question: how to best strategically adapt to the amended regulatory framework?

Key Changes

The most significant outcome of the Omnibus is a substantial reduction in the circle of companies required to report on sustainability, by as much as 90 percent at the EU level. The revised scope of the Corporate Sustainability Reporting Directive (CSRD) and the EU taxonomy includes companies with more than one thousand employees and annual revenues exceeding 450 million euros. The threshold for the application of the Corporate Sustainability Due Diligence Directive (CSDDD) has been raised even higher, so that obligations in the value chain now only cover the largest companies – those with more than five thousand employees and over one and a half billion euros in revenue.

Thanks to the so-called Stop-the-Clock Directive, which was transposed into national Accounting Law (NN 85/24, 145/24, 151/25) in December 2025, large companies that were supposed to report for the first time under the CSRD in 2025 will now do so for the financial year 2027. At the same time, the application of obligations from the CSDDD for the largest companies has been postponed by one year from the originally planned deadlines, so that the companies now covered will have to comply with its rules from 2029. Finally, small and medium-sized enterprises that were supposed to start reporting on sustainability for the financial year 2026 are exempt from this obligation.

The Omnibus also brings simplification of requirements and a reduction in the amount of data for reporting, and a revision of the European Sustainability Reporting Standards (ESRS) is underway. Although this means regulatory relief, it raises a number of new questions about market expectations and long-term competitiveness. Regulatory pressure has thus weakened, especially for companies that are now outside the scope of mandatory reporting. However, market drivers remain strong. The first reports aligned with the CSRD, published last year, raised the bar for stakeholder expectations, primarily investors and financial institutions, regarding the quality, comparability, and reliability of sustainability data.

Expectations Do Not Just Disappear

Although the Omnibus package reduces formal obligations, it does not change the fundamental fact: for financial markets, sustainability remains a signal of quality management, resilience, and long-term value. Sustainability data today is used as a key input in risk assessments, cash flow stability, and a company’s ability to adapt to structural changes – particularly decarbonization, climate risks, and disruptions in value chains. Therefore, climate transition plans remain a key tool for managing physical climate risks (floods, droughts), transitional risks (e.g., regulatory changes related to decarbonization), as well as transitioning to low-carbon business while preserving profitability and asset value. Many sectors, such as tourism and agriculture, are exposed to these risks, and companies in sectors where decarbonization is technically and economically more challenging, such as the petrochemical industry and the production of cement, steel, and aluminum, are particularly vulnerable.

These are companies that are generally subject to the EU Emissions Trading System (EU ETS), which is why regulatory, technical, and market changes have a direct financial impact on their operations. The EU ETS is gradually expanding to aviation and shipping, and soon to the construction and transport sectors. Regulatory focus is increasingly shifting towards energy efficiency in buildings and real estate management, where energy-inefficient assets carry a higher risk of value loss. Therefore, planned transitions and climate risk management can mitigate regulatory pressures, as well as save and preserve asset value in the long term.

Sustainability ‘Above Compliance’

Companies that systematically manage key ESG issues, even when they are no longer formally obligated, have a clear advantage in preserving and accessing capital and international markets. Special emphasis is placed on quantitative data regarding carbon footprints, decarbonization plans, and exposure to the aforementioned climate risks. Companies that can clearly explain where they stand, at what pace they are adapting, and how they have integrated these risks into broader risk management are perceived as more resilient and reliable in the long term.

Sustainability ‘above compliance’ is becoming a tool for enhancing competitiveness. The World Economic Forum’s report ‘Global Risks Report 2025’ confirms that among long-term global risks, environmental issues dominate, with extreme weather events, biodiversity loss, and ecosystem collapse at the top of the severity impact scale. Results from Deloitte’s 2025 research, which included leading global companies, show that despite regulatory relief and global uncertainty, investments in sustainability are not decreasing. The focus is therefore shifting from mere compliance to quality management, data consistency, and the connection between sustainability and business strategy and financial results.

How to Adapt

So, how can companies best adapt to the new framework in practice? For companies that continue with mandatory reporting, the focus is on upgrading existing processes, integrating simplified requirements, and taking into account feedback from the review of the first reports according to the CSRD. Due to the smaller number of obligated companies, these companies will increasingly be perceived as market leaders, which requires an active approach, comparison with competitors, and continuous improvement of data management.

Large companies, which have received a two-year reprieve, face a strategic decision on whether to maintain momentum or temporarily slow down activities. Continuing initiated activities proves to be a reasonable ‘no regrets’ approach. Special emphasis is placed on conducting a double materiality assessment, which allows for a clear definition of topics critical for future reporting and the identification of the most significant impacts, risks, and opportunities related to the environment and society. This enables companies to focus limited resources on areas that are truly relevant to their business, and in practice, climate change is often singled out as an area where regulatory requirements, market expectations, and actual financial impacts overlap.

Further Assess Yourself

Companies that are now outside the scope of mandatory reporting understandably feel relief, but it is also beneficial for them to assess the role of sustainability in their own business model and the expectations of key stakeholders. Although the Omnibus limits requirements in the value chain, certain data – such as carbon footprints or basic climate risk assessments – still hold value in relationships with customers and financial institutions. The use of voluntary standards from the European Commission for sustainability reporting can provide a useful framework for organizing such data and ensuring its availability.

The availability of systematized data, following the form of sustainability reporting standards, can strengthen a company’s competitiveness in the global value chain, where sustainability issues continue to be regularly raised when establishing business relationships with companies. In practice, this is most often recognized in the demand from large corporations for suppliers to provide results from certain ESG ratings, such as EcoVadis, which is the most widely used sustainability rating globally, with over 150,000 rated companies. This rating requires structured monitoring of key aspects of sustainability concerning environmental issues, labor and human rights, ethics, and sustainability practices in the value chain. Therefore, voluntarily collecting this data allows for better preparation for future requirements and maintaining a competitive advantage.

Mitigation, Not Abandonment

The Omnibus package does not mark the end of sustainability as a business topic, but rather a clearer distinction between formal compliance and strategic value. The current easing of criteria within this package does not mean that they will not be tightened again, as originally intended. Therefore, in the future, companies that are better prepared will have a significant advantage over those that are not. We remind you that the regulatory framework for sustainability reporting is part of the European Green Deal – a comprehensive strategic framework aimed at making the European economy sustainable and climate-neutral.

The main goals of this plan remain in place, primarily the effort to reduce greenhouse gas emissions by 55 percent by 2030. The Omnibus is a sign that efforts to implement it are shifting from regulatory burdens to market mechanisms and innovation incentives. While regulatory pressure weakens, market signals strengthen – and companies that recognize and integrate them into their business decisions in a timely manner will be more resilient and competitive in the long term. Less noise, but more signals for those who know how to ‘read’ the market.