From Compliance to Competitiveness: Making the Most of Europe’s ESG Breather

Brussels just pressed ‘pause’ on Europe’s flagship ESG rules—shrinking the Corporate Sustainability Reporting Directive (CSRD) universe by four‑fifths and giving large companies two extra years. Don’t mistake the pause for a pivot: capital markets, customers and CBAM still demand proof of climate action.

The European Parliament’s recent approval of the EU Omnibus Simplification Package, pending final Council endorsement, represents a significant development in the evolution of sustainability regulation. As the European Commission aims to streamline sustainability reporting through the CSRD, Corporate Sustainability Due Diligence Directive (CS3D), EU Taxonomy, and Carbon Border Adjustment Mechanism (CBAM), though it leaves the mechanics of the EU Taxonomy and CBAM untouched, the approved omnibus has sparked both relief and concern within the business community. With reforms that delay reporting requirements by up to two years and remove around four in five companies from the CSRD scope, we must ask: what does this mean for corporate sustainability? And how will it impact businesses in the Middle East?

It is tempting to view these changes as an opportunity to pause, to shift focus away from ESG disclosures, decarbonization, and sustainability strategies until the regulatory dust settles. But that would be a mistake and the reduction in mandatory reporting must not become a reduction in ambition.

What Has Changed Under the CSRD?

The Omnibus Package introduces revisions to the CSRD with the aim of reducing complexity. These changes have reshaped the sustainability reporting landscape in several ways:

Delayed Reporting Timelines

• Large non-listed EU companies will now begin reporting from FY2028 instead of FY2026.
• Listed SMEs are no longer required to report under the CSRD, removing a significant portion of smaller companies from scope. Voluntary reporting, however, is still encouraged and an SME‑tailored ESRS set may return in future.
• Public‑interest entities already reporting under the NFRD remain on the original FY 2025 timetable.

These changes have significantly reduced the number of companies subject to mandatory CSRD reporting, eliminating obligations for roughly four in five previously in‑scope entities and shifting the focus toward large entities. 

Simplification is Not a Signal to Step Back

The streamlining effort is not a rollback of the EU’s sustainability agenda; the ambitions of the Green Deal, climate neutrality, and a resilient economy remain intact. 

In fact, the reform reiterates that transparency, accountability, and double materiality continue to be foundational principles. Companies are still expected to assess and report on their sustainability risks and impacts, particularly those with a significant market presence or influence over supply chains. Regulatory flexibility has been introduced, but the expectations of investors, regulators, and customers are not easing. Importantly, the Omnibus does not alter the mechanics of the EU Taxonomy or CBAM-both remain on their original trajectories.

The Case for Continued Action

Companies that continue to invest in sustainability, whether mandated to do so or not, are positioning themselves for long-term success. That’s because: 

Implications for Middle East Companies

Although the CSRD reforms are EU-focused, the implications extend well beyond Europe’s borders particularly for companies in the Middle East with operations, customers, or investment interests in the EU. The EU imported over €76.3 billion of GCC goods in 2023 (the latest year with official data released by EU Commission), and CBAM levies on steel, aluminium and fertilisers will apply from 2026-carbon data will still be demanded at the border.

Many ME businesses, especially multinationals, sovereign-owned entities, or those seeking to attract global capital, are already aligning with international ESG standards. The CSRD has served as a global benchmark for sustainability reporting, influencing disclosure expectations across regions. Key implications for ME companies include:

Turning Pause into Progress

For companies that are no longer in the scope or are facing delayed requirements, this is not a time to wind down sustainability programmes, it is a time to:

The Mandate May Change, the Mission Has Not

Regulation has changed, but the urgency of the sustainability agenda remains constant. The Omnibus Package offers a breathing room but not an escape. Businesses now have the opportunity to move beyond compliance and embed sustainability as a core strategic priority. Those who seize this moment to lead, invest, and innovate will not only be better prepared for future regulatory shifts but will also position themselves as trusted, resilient, and future ready organisations. When the clock restarts in 2028, leaders will already be monetising low‑carbon products—laggards will be scrambling for data.

Glossary