When regulation retreats, decisive companies move forward

The European Parliament’s recent vote to scale back corporate sustainability reporting and due diligence obligations marks a pivotal shift but also a defining moment for business leaders.

For large corporates still falling squarely within the new Omnibus requirements, uncertainty about whether they must report is now gone as reporting is mandatory, and preparation is urgent. As regulation eases, the real question becomes how companies will continue building trust, resilience, and competitive strength beyond compliance.

While the European Commission aims to simplify sustainability reporting, market expectations continue moving in the opposite direction – toward deeper transparency, ethical accountability, and verifiable data. Companies that choose to disclose and validate sustainability performance can turn regulatory change into strategic advantage. And for those still required to report, early preparation and the right technical partners will determine credibility, quality, and impact.

A step back for EU sustainability regulation
In early November, the European Parliament approved a proposal to significantly narrow the regulatory scope of both the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD).

Under the revised approach:

• The CSRD reporting threshold would rise to around 1,750 employees, removing many mid-sized enterprises.
• Due diligence requirements under CSDDD would apply only to corporations with over 5,000 employees and €1.5 billion in turnover.
• Mandatory climate transition plans would be removed entirely.
• Enforcement would shift primarily to national authorities, opening the door to varied interpretations across Member States.

While these changes ease administrative burdens, many stakeholders warn that they may weaken transparency and reduce the EU’s ambition on sustainability leadership.

Yet for the organizations that remain in scope, the expectations are clearer than ever. These businesses must now accelerate internal readiness, strengthen governance and data systems, and secure expert partners to meet the defined reporting requirements.

Fewer rules, higher expectations
Even as regulatory obligations shrink, stakeholder expectations continue to rise.

Investors increasingly demand consistent, decision-useful ESG data. Procurement teams require evidence of ethical sourcing, human rights due diligence, and decarbonization performance across supply chains. Consumers and business customers expect verifiable sustainability claims, not unsubstantiated marketing.

Critically, supply chain risks do not diminish simply because rules relax. Forced labour exposure, unsafe working conditions, biodiversity impact, water use, climate-related disruptions, and geopolitical instability continue to pose material threats to brand reputation, operational continuity, and valuation. These remain business risks – not merely compliance risks.

Companies that step back from disclosures may lose credibility and visibility in markets that still expect transparency. At the same time, large organizations still obligated to report can gain a competitive edge by demonstrating leadership as others scale back.

The new reality of conscious transparency
Regulatory simplification does not equate to reduced scrutiny. Stakeholders increasingly seek insight into the full lifecycle and value-chain footprint of products, from raw materials and labour practices to biodiversity impacts and end-of-life management. Investors embed sustainability performance into risk assessments and finance structures. Employees want to work for organizations whose values are matched by their actions.

Choosing not to disclose because reporting is no longer mandated does not reduce risk, it increases the likelihood of stakeholder distrust.

For companies that continue reporting voluntarily and credibly, this moment represents an opportunity to differentiate through authenticity and maintain strong positioning in markets where transparency is becoming the norm.

Why voluntary disclosures still matter
For many organizations, sustainability reporting is already far more than a compliance requirement. It delivers strategic value across multiple areas:

• Investor confidence: Verified ESG metrics aligned with global frameworks such as ISSB, TCFD, and GRI.
• Customer assurance: Proof of responsible sourcing, emissions reduction, and supply-chain integrity.
• Brand and reputation: Transparency strengthens trust and loyalty.
• Operational performance: Structured reporting reveals risks, inefficiencies, and opportunities for innovation.

Sustainability data has become a strategic asset. It unlocks access to green financing, boosts investor confidence, shapes M&A decisions, and influences procurement outcomes.

Under the new Omnibus scope, credible, high-quality data will determine how effectively companies can prepare for audits, withstand market scrutiny, and meet stakeholder expectations. Early preparations will prevent last-minute compliance pressure and ensure strong governance foundations.

Going deeper: IRO assessments and dynamic materiality
A significant challenge for many companies lies in identifying Impacts, Risks, and Opportunities (IROs) at the level of depth regulators and stakeholders expect. Many organizations still approach IRO identification narrowly, lacking the technical expertise needed to assess climate risk, supply-chain exposure, resource use, and broader societal impacts.

A robust IRO library is essential, not only for reporting but for strategy and risk management. As global standards converge, interoperability between ISSB and ESRS frameworks will require companies to strengthen their approach with globally aligned methodologies.

Materiality is also dynamic. Rapid changes in climate science, geopolitics, technology, and social expectations mean assessments must be updated more frequently, ensuring decisions remain relevant to evolving risks and opportunities.

For companies now outside CSRD scope, emerging VSME (Voluntary Sustainability Reporting Standards for SMEs) frameworks will play an increasingly important role, particularly for those operating in the supply chains of global brands.

Turning transparency into competitive advantage
Companies can leverage sustainability reporting as a strategic differentiator by:

1. Acting now to assess new obligations: Businesses still in scope under the Omnibus rules must begin preparations immediately.
2. Strengthening verification and assurance: Independent validation enhances credibility and mitigates greenwashing risk. While ESRS assurance is still evolving across regions, DNV offers a wide range of verification services, including VSME reporting verification and ISO 14067 product carbon footprint verification.
3. Embedding sustainability into governance: Linking sustainability outcomes to executive incentives and strategic oversight ensures alignment.
4. Engaging the entire value chain: Encouraging suppliers to measure and share sustainability data improves resilience and transparency across ecosystems.
5. Communicating progress openly: Clear disclosures build trust especially when they acknowledge both achievements and challenges.

Why inaction carries risk
Opting out of reporting may seem administratively easier in the short term, but it introduces strategic blind spots, reputational vulnerabilities, and barriers to capital and procurement. For companies required to report, delayed action may compromise compliance readiness and weaken stakeholder trust.

Sustaining momentum amid policy uncertainty
While the EU may scale back elements of its framework, global sustainability standards, such as ISSB, are accelerating. Other markets are tightening disclosure rules. For required reporters under the Omnibus, aligning with global frameworks will ensure competitive relevance beyond the EU.

How DNV supports credible sustainability reporting
DNV enables organizations to move beyond compliance by embedding sustainability into core strategy and strengthening transparency at every level.
For companies confirmed as in-scope under the revised thresholds, DNV supports:

• Designing reporting systems aligned with regulatory and global standards.
• Strengthening governance and internal controls.
• Developing robust IRO libraries.
• Verifying data quality and sustainability claims.
• Preparing for VSME, ISSB, and interoperable reporting.
• Conducting climate risk assessments and product carbon footprint verification.

From compliance to confidence
As EU sustainability regulations evolve, companies must adapt particularly those still required to report. The time to act is now. Choosing expert partners early helps ensure quality, reduces risk, and builds long-term value.
DNV has supported companies long before EU regulations came into effect, and we will continue to guide organizations through regulatory change, market expectations, and the journey toward greater transparency.

Want to lead from the front?
If your organization is among those required to report under the updated Omnibus scope, preparation cannot wait. Partner with DNV to embed sustainability into strategy, strengthen data integrity, and build the transparency and trust your stakeholders expect.

11/18/2025 9:28:00 AM