EU Sustainability Rules Reset: What the 2026 Changes Mean

At the start of 2026, EU sustainability regulation enters a new phase of clarity and renewed momentum. The Sustainability Omnibus lowered the regulatory bar – but it raised the stakes for voluntary leadership as the key to resilience and futureproofing.

After months of uncertainty and stalled progress, the EU’s sustainability framework closed 2025 with more clarity and purpose. The agreements reached between the European Parliament and Council in December ended the regulatory limbo, which had stalled numerous corporate initiatives.

Yet this clarity came with longer-term strategic considerations for companies to assess. The recalibration of the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD) and the simplification of the European Sustainability Reporting Standards (ESRS) reduce the scope and depth of sustainability-related reporting, due diligence, and action in the EU at a time when climate, environmental, and social pressures instill urgency. While easing near-term compliance burdens, the agreed amendments also introduced uncertainty around future reporting expectations and the degree of alignment between regulatory frameworks, business strategy, and sustainability-related risk management in the EU.

But regulatory adjustments do not eliminate the underlying business drivers shaping corporate sustainability decisions. Physical and transition risks, investor scrutiny, and customer and value-chain expectations continue to influence strategy, capital allocation, and risk management. In this environment, companies face a practical choice: whether to anchor their sustainability efforts narrowly to revised regulatory requirements, or to position them in a way that supports longer-term resilience, credibility with external stakeholders, and adaptability as expectations continue to evolve.

Considerations for In-Scope Companies: Balancing CSRD/CSDDD Compliance with Long-Term Resilience and Competitiveness

Reconfirm scope, entity perimeter and timing

In early December, the Council and Parliament reached a provisional agreement setting CSRD thresholds to more than 1,000 employees and over €450 million in net turnover. Member states will be able to exempt Wave 1 companies that began reporting in 2025 for FY2024 but will fall outside the revised scope of reporting obligations. Financial holding undertakings will be exempt. Following formal adoption and publication in the Official Journal of the European Union, CSRD amendments will enter into force and apply from January 2027.

For CSDDD, thresholds have been raised to more than 5,000 employees and over €1.5 billion in net turnover, with implementation postponed until mid-2029. The requirement to adopt and implement a climate transition plan has been removed.

It should be emphasized that the Omnibus agreement includes review clauses for both CSRD and CSDDD, meaning the scope of mandatory reporting and due diligence obligations could tighten again in the future.

Practical Steps

• • Reassess your operations against the new CSRD and CSDDD thresholds.
  • Map exemptions, transition reliefs and phased-in disclosures.
  • Track Delegated Acts and national transpositions to understand local expectations.
  • Maintain a ‘ready-to-scale’ approach for reporting and due diligence in case the EU re-extends scope.

For third-country parents with EU business: Plan for FY28/29 reporting

Non-EU group reporting will apply when at least one EU subsidiary or branch generates €200 million in turnover, provided the group’s EU turnover is at least €450 million. Non-EU standards are expected no earlier than October 2027, with reporting commencing in 2029 for the 2028 financial year. Early planning is essential to avoid a last-minute scramble.

Practical Steps

• • Establish an EU reporting workstream to map EU turnover, identify qualifying EU subsidiaries and branches, and ensure interoperability with global frameworks (IFRS S1/S2 and relevant jurisdictional regimes).
  • Prepare for the publication of technical standards (expected no earlier than October 2027) by implementing data harmonization and group consolidation policies.

Refresh double materiality and streamline ESRS disclosures to ensure ‘decision usefulness’

The Omnibus agreement emphasizes materiality, fair presentation, proportionality, and a stronger quantitative focus, while confirming that no sector-specific ESRS will be developed going forward.

At the start of December, EFRAG delivered its technical advice on simplified disclosure standards to the European Commission. The proposed revisions reduce ESRS data points by more than 70%, significantly easing the reporting burden and providing companies with streamlined requirements for materiality assessments and data collection. It is supplemented by enhanced guidance.

The European Commission will now prepare the Delegated Act revising the ESRS. Adoption is expected by June 2026.

Practical Steps

• • Define ‘decision usefulness’ for stakeholders: Clarify what information is most valuable for internal and external decision-making. Align reporting priorities with stakeholder expectations and strategic objectives.
  • Map exemptions, transition reliefs and phased-in disclosures.
  • Revisit double materiality with proportionality in mind: Focus assessment efforts on the most salient impacts, risks, and opportunities, reflecting company specific context and decision making needs.
  • Redesign your data collection model: Prepare for ESRS simplification by identifying non-material data points to remove once the Delegated Act is published. Streamline processes to reduce complexity while maintaining accuracy and reliability.
  • Go beyond compliance in disclosure strategy: Evaluate disclosures not only from a CSRD compliance perspective but also for strategic value. Trim narratives to avoid duplication, improve clarity, and prioritize concise, quantitative disclosures.
  • Strengthen alignment with IFRS-style concepts of fair presentation: Apply principles of balance, completeness, and consistency while preserving decision relevant, impact related information.
  • Exercise caution with entity-specific information: Use entity-specific disclosures selectively and thoughtfully, ensuring they add real decision-useful value and avoid excessive customization. Leverage standardized data points from established frameworks such as GRI, SASB and topical standards such as TNFD for consistency and comparability.

Strengthen governance, controls, and limited assurance readiness

The Omnibus retains limited assurance for CSRD with envisaged targeted assurance guidance but removes the pathway to reasonable assurance escalation.

Practical Steps

• • Strengthen internal control frameworks for sustainability data: Build robust governance structures, including clear policies, defined process ownership, documented evidence trails, and transparent data lineage to ensure accuracy and reliability.
  • Align assurance scope and enhance audit readiness: Update your assurance approach to reflect limited assurance requirements. Refresh audit readiness plans by refining methodologies, risk matrices, sampling strategies, and centralizing documentation in secure repositories.

Redesign value chain data collection under the ‘value-chain cap’

The Omnibus agreement introduces a cap on trickle-down requirements: smaller entities that are not in scope for CSRD may refuse excessive information requests from CSRD-reporting partners. Any requests should not exceed the scope of the voluntary standard for SMEs (VSME), developed by EFRAG in 2024 and endorsed by the Commission in a mid-2025 recommendation.

Practical Steps

• • Segment suppliers by size and risk: Classify suppliers based on employee size and sustainability risk. For suppliers with fewer than 1,000 employees, limit requests to the scope defined by the VSME standard.
  • Adopt a risk-based approach to value chain data: Focus on high-impact geographies, products, and services rather than exhaustive data collection. Prioritize areas with material sustainability risks.
  • Explore efficient data collection methods: Utilize indirect sources now clarified under the simplified ESRS, including sector-average data; sample analyses; market and peer group benchmarks; spend-based data, or other proxies. These approaches help minimize burden while maintaining decision-useful insights.

Sustain human rights and environmental due diligence (even with narrower CSDDD)

CSDDD thresholds have been increased, and the obligation to implement a climate transition plan has been removed. However, CSRD continues to require disclosure on climate transition plans, and companies remain subject to national regulations and market scrutiny. Investors have publicly warned that weaker EU mandates could lead to data gaps and reduced comparability in this area. Importantly, the due diligence obligations outlined in the original CSDDD build on widely accepted frameworks such as the UN Guiding Principles (UNGP) and the OECD Guidelines – standards shaped by decades of stakeholder consultation.

Practical Steps

• • Integrate a risk-based due diligence programme: Identify adverse human rights and environmental impacts, and material risks, implement remediation measures, track progress, and report voluntarily where impacts can be material.
  • Confirm applicability of country-level regulations: Verify whether national due diligence requirements continue to apply despite changes in EU-level obligations.
  • Maintain contractual safeguards and escalation protocols: Keep codes of conduct, audit rights for high-risk tiers, and clear escalation procedures in place—even if your organization falls outside mandatory CSDDD scope.

Considerations for Out-of-Scope Companies: Navigating Trickledown Effects and Market Expectations

Decide your voluntary reporting posture and build a VSME+ data set

With approximately 85–90% fewer companies in scope for CSRD, investors and lenders will increasingly rely on voluntary disclosures and external data. They still need comparable, material information. While SMEs can refuse excessive sustainability reporting requests beyond the VSME standard, access to markets and capital often depends on providing credible information. At the same time, companies in your value chain may request evidence of risk management or actions supporting their targets in critical areas—going beyond the basic VSME requirements.

Practical Steps

• • Choose your reporting posture: Adopt either
    • • • a VSME-aligned baseline approach, or
        • a VSME+ approach to strengthen access to capital markets when customers or banks request additional sustainability data—a light ESRS-aligned baseline to enhance disclosures on material topics (e.g., governance, climate, workforce), or an ISSB-aligned core.
  • Build a ‘VSME+’ data set: Map frequent requests from your largest customers and financiers, and pre-populate a standardized information pack (policy statements, KPIs, certifications). To respond efficiently, leverage standardized data points from frameworks like GRI and SASB, and incorporate topical standards such as TNFD for critical areas.
  • Automate and structure processes: Where feasible, automate data capture for GHG basics (Scopes 1 and 2, and material Scope 3 categories), human rights impacts and risk screening, and product-level attributes.

Decide your voluntary reporting posture and build a VSME+ data set

The obligation to implement climate transition plans was removed from CSDDD, but investors have warned that this rollback makes assessing transition credibility harder. Voluntary plans can help preserve access to finance, preferred supplier status, and overall resilience.

Practical Steps

• • Draft a concise transition plan (targets, levers, CapEx, governance), link it to customer or lender goals, and disclose progress annually.
  • Use science-based tools where feasible and keep the plan proportionate to your size and risk profile.

Decide your voluntary reporting posture and build a VSME+ data set

CSDDD now applies only to the largest firms and narrows obligations, but national enforcement and buyer demands persist. Having risk-based controls reduces disruption in RFPs and audits.

Practical Steps

• • Implement a lean due diligence process: Screen for adverse human rights and environmental impacts, focus on material risks in your operations and value chain, remediate issues, and document actions—even if not mandated.
  • Confirm applicability of country-level regulations: Verify whether national due diligence requirements continue to apply despite changes in EU-level obligations.
  • Keep contractual clauses updated and maintain whistleblowing and grievance mechanisms: Ensure agreements reflect current regulatory and stakeholder expectations and verify that reporting channels and remediation processes remain accessible, credible, and effective.

Decide your voluntary reporting posture and build a VSME+ data set

Sustainability regulations and market dynamics are reshaping the global business landscape, influencing strategy, risk management, and access to capital. The EU’s recalibrated framework is part of a broader trend across multiple jurisdictions worldwide, where regulatory shifts and evolving stakeholder expectations are redefining disclosure practices and influencing business performance. For companies seeking to remain relevant, prepared, and resilient amid accelerated change, these shifts underscore the need for clarity, adaptability, and a forward-looking approach that aligns compliance with long-term competitiveness.