As sustainability reporting requirements expand in 2025, European companies are navigating a shifting regulatory landscape that will shape investment trends, corporate strategies, and the broader economy. The European Commission is expected to unveil an “Omnibus Package” towards the end of February 2025, aiming to simplify sustainability-related reporting obligations. However, its potential impact is currently under debate [1] .
This initiative concerns three key pillars of the EU sustainability regulation:
- Corporate Sustainability Reporting Directive (CSRD): Governs financial and non-financial impact disclosures for companies.
- Corporate Sustainability Due Diligence Directive (CSDDD): Requires companies to conduct due diligence on human rights and environmental risks in their own operations and across their supply chains.
- EU Taxonomy: Establishes a classification system to define environmentally sustainable economic activities, guiding sustainable investments.
These measures aim to reduce compliance complexity, enhance market competitiveness, and maintain high environmental and social standards while ensuring a smoother transition to a greener economy. By addressing the disproportionate burden on smaller businesses, the initiative seeks to prevent the trickle-down effect from overwhelming SMEs, allowing them to remain central to investments without compromising sustainability goals [2] .
However, the initiative sparks debate. Supporters argue that simplifying regulations will ease compliance, making it easier for businesses—especially smaller ones —to integrate sustainability reporting and attract investment, ultimately strengthening the European economy through innovation. On the other hand, critics warn that excessive deregulation could weaken transparency and accountability, reversing years of progress [3] . Notably, investors managing EUR 6.6 trillion in assets have cautioned the EU against weakening sustainability regulations, emphasizing that reliable sustainability information is crucial for informed decision-making [3] .
The real challenge lies in finding the right balance: a well-structured framework can drive innovation and green investment [4] , but overly complex or bureaucratic requirements risk creating barriers to effective implementation.
Ultimately, as the CSRD broadens its scope and gains global relevance, the focus shifts to practical implementation. Helping SMEs comply, fostering sustainable investment, and equipping businesses with the tools for double materiality (assessing both financial and environmental, social, and governance (ESG) impacts) will be key to navigating the evolving landscape.
1. CSRD expands its reach across EU and global markets
Starting in 2025, approximately 50,000 companies across the European Union will be subject to new non-financial reporting regulations under the CSRD, expanding its scope beyond the previous NFRD. These companies will submit their first reports in 2026 for FY 2025 [5] . The regulation will broaden further, encompassing listed SMEs by 2027 and non-EU companies with substantial European operations by 2028 [6] . From 2024 on, nearly 40,000 companies are expected to be affected gradually [8] , including non-listed SMEs, which will face compliance requirements due to the trickle-down effect through supply chains and industries [5] .
Although some EU countries face delays in national adoption [7] , the CSRD’s scope continues to expand, and its relevance is growing beyond Europe to gain global significance. Ensuring that SMEs can comply without being overburdened has become a key priority.
2. The Omnibus Package supports SMEs by simplifying compliance
As the CSRD broadens, efforts to streamline reporting—especially for SMEs—are gaining momentum. The Omnibus Package proposes the creation of a ‘small mid-cap’ category, aiming to reduce reporting requirements by at least 25% for all companies and 35% for SMEs, thereby easing the compliance burden. The initiative also aims to reduce reporting requirements by at least 25% for all companies and 35% for SMEs, ensuring smaller businesses can adopt sustainable practices without sacrificing competitiveness [1] .
By making sustainability reporting more accessible for SMEs while maintaining robustness, the Omnibus Package reinforces the CSRD as the standard for sustainable business strategy.
3. CSRD’s core principles demand a focus on practical implementation
The CSRD is firmly established, even as discussions around revisions and simplifications continue. The EU has provided additional time for businesses to adapt by postponing industry-specific and non-EU company reporting requirements until June 2026. However, ESG disclosures required under the CSRD still apply to annual reports starting in 2024 [8] . While some details may evolve, its core principle—the double materiality approach—remains intact. This means companies must assess financial materiality (how sustainability factors affect the company’s performance) and impact materiality (how the company’s activities affect society and the environment).
For instance, a company’s carbon footprint impacts the environment but may also lead to regulatory fines or reputational damage, affecting its financial performance.
Another essential aspect of compliance is stakeholder engagement. Companies must identify and collaborate with key representative groups—customers, employees, suppliers, and civil society—to align sustainability strategies with their needs and expectations. Active engagement provides valuable insights that can drive sustainable growth and improve long-term performance.
Rather than waiting for further adjustments, businesses should focus on mastering these core principles now. Tailored solutions supporting compliance in terms of materiality assessments and stakeholder engagement will remain crucial as the CSRD continues to evolve.
4. The future of sustainable investment remains bright despite regulatory hurdles
Despite ongoing debates and revisions, the future of sustainable investment remains strong. The EU Taxonomy continues to play a crucial role in guiding investors and businesses toward aligning their financial strategies with sustainable practices. In 2024, European companies disclosed €440 billion in Taxonomy-aligned capital expenditures—a figure expected to grow as sustainability reporting becomes more established [9] .
A significant indicator of this shift is that a majority of businesses plan to allocate a substantial portion of their IT budgets to preparing for CSRD reporting, reflecting a strong commitment to compliance [10] . This strong commitment to compliance reveals a broader shift in business strategies, where not only financial returns but sustainable practices drive growth. As businesses solidify this shift, they attract investments aligned with long-term value creation, signaling a positive scenario for sustainable investment.
The regulatory landscape is shifting rapidly, and businesses that align with these changes proactively will gain a competitive edge. Companies must act now to integrate sustainability into their strategies, ensuring compliance and positioning themselves for long-term growth in a rapidly evolving regulatory landscape.
