Evolving Legislation: What does regulatory reversal mean for sustainability?
- caoilinnokelly
- 5 hours ago
- 3 min read
In recent months, the regulatory landscape beneath European businesses has started to shift. The legislative foundation that was supposed to create a new era of corporate sustainability has begun to crack under political pressure.
The EU’s landmark sustainability initiatives; the CSRD, CSDDD, and EUDR have been diluted, and in some cases, delayed. As a result of these developments, the EU Omnibus emerged. A “simplification” of the rules with a view to amending the CSRD and CSDDD.
While some have welcomed this reduced compliance load, there is a growing sense of confusion and concern. What exactly is going on, and more importantly, what should companies do about it?
The EU Omnibus: Simplification or Setback?
The so-called Omnibus is not a new law in its own right but rather a consolidation and softening of existing sustainability legislation. It merges the CSRD (Corporate Sustainability Reporting Directive) and the CSDDD (Corporate Sustainability Due Diligence Directive), reducing obligations for many companies.
Key takeaways:
What it is: A political compromise aimed at reducing the administrative burden of ESG reporting.
What it means: Fewer companies will be legally required to report sustainability metrics.
What to expect: Potential reversals, delays and certainly further debate.
What it means practically: For many companies, especially those who had geared up for compliance, this feels like the rug has been pulled from under their feet. For everyone, including those who hadn't begun the process yet, the future of reporting standards is unclear.
The European Central Bank has responded to these changes by arguing that sustainability reporting is a strategic asset. Their take reflects that:
the proposed 80% reduction in reporting scope creates systemic blind spots
Voluntary reporting can lead to data gaps, greenwashing, and bias
Their recommendation includes keeping sustainability reporting mandatory for all significant institutions, and use simplified standards for medium-sized firms, not to eliminate requirements altogether.
EUDR: A case of Regulatory Re-alignment
The EU Deforestation Regulation (EUDR), has undergone significant back and forth in 2025. Designed to curb deforestation linked to commodities such as coffee, cocoa, soy, palm oil, cattle, wood, and rubber, the law requires that products placed on the EU market are “deforestation-free” and traceable back to their production plots.
Yet, implementation has proven more complex than expected. Following pressure from both member states and trading partners, the European Commission announced in in late 2024, a one-year delay to the EUDR’s full enforcement, pushing the compliance date for large and medium-sized companies to December 2025 (with a 6 month grace period for non-compliance), and for small and micro-enterprises to June 2026.
The shifting timeline reflects a familiar pattern across sustainability policy: rules are softening at the political level, yet expectations from investors, customers, and markets continue to harden.
For businesses, this re-alignment is a double-edged sword. The delay offers breathing room, yet it also prolongs uncertainty. Companies that begin compliance early will likely find themselves better prepared. Because even as timelines shift, transparency remains non-negotiable: the EUDR is still coming, and companies need to comply.
Regulation: Asset or Liability?
Regulation is meant to guide long-term strategy. But businesses now face a dilemma: those who invested in CSRD or EUDR compliance now wonder if their efforts were premature or unnecessary. Others who held back may find themselves even less prepared for what might follow.
This uncertainty is not just inconvenient, it’s risky. Businesses making strategic decisions on shifting legislation may be forced to change course again and again.
While regulation falters, some investors are doubling down on sustainability. Norges Bank Investment Management (NBIM), the world’s largest sovereign wealth fund recently announced new expectations for the companies it invests in. Far from rolling back, they are raising standards for their investments.
Their expectations now include:
Clear board-level responsibility for sustainability
Science-based targets for climate and nature
Human rights due diligence aligned with UNGP & OECD
Reporting via ESRS, GRI, or TCFD
NBIM estimates that 19–27% of their portfolio value is at risk due to physical climate impacts, far above traditional models and their previous estimates. These new requirements are a form of risk mitigation.
The Private Sector Moves Forward. Will Regulation Catch Up?
In this new landscape, relying solely on regulation as a roadmap can be difficult. Many forward-looking businesses, from Norges Bank to early-adopting consumer brands are treating sustainability not as an obligation, but as an indicator of resilience, transparency, and market readiness.
Sustainability isn’t just about compliance. It’s about consumer trust, investor confidence, and long-term competitiveness.
As lawmakers scale back sustainability legislation, the private sector is raising the bar. The EU may be rolling back, but businesses viewing sustainability assessments as a risk indicator can benefit from the added transparency and compliance with regulations down the line.
Because while rules can be repealed, trust, once lost, is much harder to recover.