Sustainability regulation in transition: Why forward-looking compliance management is becoming a competitive advantage
On February 26, 2025, the EU Commission published the first two packages of its omnibus initiative (Omnibus I and II) to reduce red tape for companies.¹ This initiative marks a decisive turning point for the requirements for European sustainability reporting (CSRD and taxonomy) and due diligence obligations for companies (CSDDD). It puts key parts of the EU Green Deal², which was adopted in 2019, to the test and is based on the new EU Clean Industrial Deal.³ For companies, this means a period of reorientation and uncertainty. While the proposed changes initially promise considerable relief in terms of reporting and simplified due diligence obligations, they also create considerable uncertainty.
However, the Commission’s omnibus proposals only mark the start of the legislative process. The final legal framework will only be finalized after the negotiations between the European Parliament and the European Council of Ministers. The ongoing legislative process and the announced further amendment proposals for additional (OMNIBUS) simplification packages are forcing companies to strategically reassess and adapt their ESG and compliance approaches in an environment of permanent regulatory change. Despite deregulation, a convincing ESG strategy remains sensible and a sustainable compliance management system a real competitive advantage in times of regulatory uncertainty.
“This phase of uncertainty in particular shows how valuable robust compliance and governance structures are. They not only provide orientation in times of change, but also secure the trust of customers and partners – regardless of how the regulatory situation develops.”
Uwe M. Erling, Partner
ESG remains a decisive factor despite deregulation
While the EU is making a significant course correction in sustainability regulation with its OMNIBUS initiative and the USA is also scaling back ESG regulations, a key question for companies worldwide is: is ESG still relevant if the major economic regions are reducing their regulation? In our view, the answer is a clear “yes” – and the reasons for this go far beyond the current regulatory debate.
- Long-term risk minimization: ESG management is fundamental risk protection. Climate change, resource scarcity and social challenges exist independently of political cycles. Companies that proactively manage these risks are better equipped to deal with future shocks – whether they arise from new regulation, market changes or physical climate impacts.
- Market dynamics remain: Even if the currently proposed changes exempt many originally affected companies from formal reporting obligations – the underlying market mechanisms will remain. Large corporations will continue to request certain sustainability data in the value chain from non-reporting companies. The introduction of a so-called “value-chain cap” may regulate the flow of information, but it does not completely relieve smaller companies of the need to collect and provide relevant ESG data.
- Investors continue to demand transparency: capital markets develop independently of regulatory fluctuations. Investors, banks and insurance companies have long since firmly integrated ESG criteria into their valuation models. The announced revision of the requirements for sustainability reporting standards (ESRS) with improved “interoperability with global reporting standards” shows this: The trend is towards more, not less, international harmonization of sustainability standards.
- Competitive advantages through proactivity: Companies that scale back their ESG strategies now risk significant competitive disadvantages. While regulatory requirements may currently be easing, the expectations of customers, employees and business partners continue to rise. The proposed focus on “quantitative information” in the forthcoming revised ESRS standards is evidence that measurable sustainability performance is becoming increasingly business-critical. The impact of this regulatory fluctuation is clearly reflected in business practice.
“Many of our clients are unsettled by the OMNIBUS initiative. We work with them to develop solutions and advise them on a long-term sustainable reporting culture that is also useful outside of the OMNIBUS initiative.”
Nicole Willms, Partner
Strategic approaches for sustainable compliance management
Instead of merely reacting to the changing regulatory requirements, a proactive approach with the following aspects is recommended from a compliance perspective:
- Retaining governance structures: It makes sense to retain established delegation and reporting channels for the time being, as they offer companies stability and guidance during the current transition phase. The time gained through extended deadlines can be used to further develop ESG governance structures in a targeted manner and to sustainably optimize existing processes without prematurely abandoning proven routines. Measures that have already been introduced, such as the CSRD materiality analysis, provide valuable insights for a critical review and targeted improvements.
- Protection against greenwashing : Irrespective of current regulatory changes, the Federal Court of Justice clarified as early as 2024 that environmental advertising claims are subject to an increased need for information due to the particularly emotional nature of the topic and must therefore meet particularly strict legal requirements – just like health-related advertising. Against the backdrop of the continuing danger of greenwashing, transparent and credible sustainability management is becoming increasingly important, especially in times when reporting and auditing obligations are supposedly being relaxed. Companies that adopt a self-defined and resilient approach not only strengthen their reputation in the long term, but also effectively protect themselves against regulatory risks.
- Ensuring credibility with stakeholders: Maintaining structured and harmonized ESG and compliance processes and controls ensures the reliability and integrity of reporting within the company – a clear signal to all stakeholders. This not only strengthens trust in reporting, but also in corporate governance as such.
- Integrated sustainability reporting: The development and establishment of an integrated reporting system that systematically records and processes sustainability data and relates it to other company-relevant data creates tangible long-term benefits – regardless of which specific statutory reporting obligations ultimately apply. Sophisticated reporting not only strengthens operational efficiency, but also improves internal management capability: it increases planning security, supports well-founded decisions and enables company management, supervisory bodies and other gatekeepers to react more quickly and in a more targeted manner to risks and opportunities.
- Long-term perspective instead of short-term compliance actionism: The revision of the sustainability rules should be seen as an opportunity to fundamentally rethink your own governance and compliance structures. It is not just about being compliant in the short term, but about establishing a sustainable reporting and compliance culture that can absorb regulatory changes and at the same time create real added value for the company and its stakeholders. Companies that see this challenge as an opportunity and establish appropriate structures will benefit in the long term from their adaptability and strategic approach to sustainability issues – regardless of how the OMNIBUS initiative ultimately takes shape.
Outlook
The OMNIBUS initiative may reshape the regulatory framework for sustainability in the EU, but companies that strategically integrate ESG aspects and compliance management into their corporate governance will be more resilient even in times of regulatory uncertainty and will benefit in the long term from their forward-looking approach – also as an opportunity for sustainable competitive advantage in a changing economic environment.
Contact persons: Uwe M. Erling and Nicole Willms
¹ COM (2025) 80 and 81 final of February 26, 2025.
² Communication from the Commission, “The European Green Deal”, COM (2019) 640 final of December 11, 2019.
³Communication from the Commission, “The Clean Industry Deal: A Joint Roadmap for Competitiveness and Decarbonization”, COM (2025) 85 final of 26 February 2025.