17 weeks after Omnibus Press Release: ESG Reaching the Inflection Point- From Compliance to Value Creation
By Madiha Mouchtak MBA
My last publication on ESG explored the initial post-Omnibus decision landscape. Now, approximately 17 weeks since the European Union's pivotal press release on the Omnibus Simplification Package, the critical question remains: What has happened, where is ESG truly heading, and what does this profound evolution mean for businesses?
In the dynamic landscape of Environmental, Social, and Governance (ESG) considerations, 2025 marks a pivotal moment—an inflection point where the narrative around sustainability is fundamentally shifting. Once viewed primarily through the lens of compliance, ESG is rapidly evolving into a critical driver of value creation and strategic imperative.
This article will take you through the recent wave of adjustments within the European Union's ambitious ESG reporting framework and explores how these regulatory shifts are interacting with persistent global market demands.
While simplification efforts aim to ease the burden, we will unveil how influential actors like the European Central Bank, coupled with the expectations of international investors and banking institutions, ensure that the push for robust, material ESG disclosure remains undiminished. Far from signaling a retreat, these developments underscore a maturation of ESG, compelling businesses to integrate sustainability deep into their core strategy for long-term resilience and competitive advantage.
Join me as I unpack these trends, demonstrate why, now more than ever, ESG is becoming ingrained as "business as usual," where preparation and performance will be the keys to unlocking significant value.
I. Recent Developments in EU ESG Reporting (Post‑Omnibus Decision)
Over the past months, the EU has enacted sweeping changes to its sustainability oversight framework under the Omnibus Simplification Package:
“Stop‑the‑Clock” delaying timelines: The "Stop-the-Clock" Directive, in force since April 2025, postponed CSRD reporting for many companies (notably Wave 2 and 3) and related Taxonomy deadlines by two years, and CSDDD’s by one—giving firms additional time to prepare.
Streamlined CSRD requirements: The European Commission is set to adopt a “quick‑fix” delegated act, anticipated in June 2025, to ease disclosure requirements—especially for Wave 1 firms—by delaying new data obligations under ESRS for FYs 2025–26.
Scope narrowed: New proposals aim to limit mandatory CSRD coverage for many companies and align thresholds more closely with the CSDDD, reducing the number of companies in scope and capping value‑chain data requests for smaller suppliers. For instance, EU Taxonomy reporting is set to become voluntary for companies within CSRD scope, but with turnover below €450 million, and specific thresholds like 1,000+ employees are being considered for certain non-EU companies.
Simplified standards: EFRAG’s June 2025 Progress Report on ESRS simplification outlines plans to achieve a 50+ percent reduction in the number of data points. This includes prioritizing quantitative data for more measurable, comparable insights, placing emphasis on principles rather than a checklist of granular information for policies, actions, and targets (PATs), and a sharpened focus on materiality to reduce overall volume by removing "least relevant" data points. EFRAG's final technical advice on these revisions is expected by October 2025.
These adjustments reflect both political pressure to reduce administrative burdens and a recognition that high-quality ESG reporting must be targeted and manageable.
II. Global Convergence and Strategic Adaptation- Evolving but Maturing ESG Landscape: Beyond the EU, May and June 2025 saw other significant global trends reinforcing the maturation of ESG reporting from a compliance exercise to a strategic imperative:
ISSB Standards Gaining Traction: The International Sustainability Standards Board (ISSB) is actively supporting global adoption of IFRS S1 and S2, with over 35 jurisdictions now committed or working towards implementation. Proposed amendments to IFRS S2, particularly for GHG emissions disclosures, signal a continued focus on practical application and refinement.
GRI and Interoperability: The Global Reporting Initiative (GRI) is actively promoting interoperability with ESRS, urging alignment for reduced disclosure burdens. GRI's ongoing development of digital taxonomies further supports efficient, comparable, and machine-readable sustainability reporting globally.
CDP's Role in Harmonization: CDP's 2025 disclosure cycle emphasizes stability and strong alignment with both ISSB (IFRS S2) and ESRS (E1 on climate), serving as a crucial tool for companies navigating multiple reporting frameworks efficiently.
Intensified Greenwashing Scrutiny: Globally, regulatory bodies, including ESMA (European Securities and Markets Authority) are increasing their focus on greenwashing. New guidelines for ESG fund naming (effective May 2025) and advancing regulations for ESG ratings aim to ensure greater transparency and reliability, pushing companies to substantiate environmental claims rigorously. However, a notable development in June 2025 was the European Commission's decision to withdraw its proposed Green Claims Directive, signaling a shift in approach for substantiating environmental marketing claims within the EU.
Persistent Scope 3 Challenges and Digitalization: Across all frameworks, accurately reporting Scope 3 (value chain) emissions remains a significant challenge, driving continued investment in robust internal systems, supplier engagement, and digital tools for high-quality, auditable ESG data.
Broader ESG Integration: Discussions around the EU Social Taxonomy and ISSB's research into new topics like Biodiversity and Human Capital highlight a widening scope beyond climate, emphasizing the comprehensive integration of environmental, social, and governance factors into business strategy.
These global developments underline a universal movement towards more practical, aligned, and strategic sustainability reporting, enabling companies to integrate ESG deeper into their core operations and disclosures.
III. Investor and Banking Response to Scope Changes
While the Omnibus Package aims for simplification, the proposed significant reduction in the scope of companies covered by CSRD and CSDDD has met with considerable pushback from key stakeholders:
European Central Bank (ECB) Concerns: The ECB has voiced strong reservations, arguing that removing a large percentage of companies from mandatory reporting could significantly limit stakeholders' access to crucial information, create data gaps, and lead to "systematic and unquantifiable bias" in aggregate sustainability data.
The ECB emphasizes that high-quality ESG data is essential for its roles in ensuring financial stability and managing monetary policy. They have recommended a less drastic scope reduction, advocating for simplified reporting for companies with 500-1,000 employees and continued inclusion of all credit institutions. While the European Commission has acknowledged this feedback, its proposed Omnibus changes continue to aim for significant scope reduction, with the final outcome now subject to ongoing trilogue negotiations with the Council and Parliament.Investor Community Apprehension and Continued Demand: Many investors, particularly large asset owners and managers, express concerns that the reduced scope could undermine transparency and comparability, making it harder to conduct robust ESG analysis, identify risks, and effectively allocate capital towards sustainable investments. While some simplification is welcomed, there are widespread calls to "preserve the integrity and ambition" of the framework.
What this means for businesses:
Continued Data Demands (Even if Out of Scope): Even for companies falling out of mandatory CSRD/CSDDD scope, market forces will drive continued data requests. Investors and banks, subject to their own stringent ESG disclosure and risk management regulations (e.g., CRR III/CRD VI for banks, SFDR for investors, and other global frameworks like ISSB), will still require granular sustainability data from their investee companies and loan clients to ensure financial stability and make informed decisions.
Supply Chain Pressure: Larger companies that are in CSRD scope will continue to ask for ESG data from their value chain partners (including smaller firms) to meet their own reporting obligations, particularly for Scope 3 emissions and CSDDD due diligence.
Voluntary Reporting as a Strategic Advantage: This sustained demand means that adopting voluntary standards, such as the EU's Voluntary Sustainability Reporting Standards for SMEs (VSME), can become a strategic advantage for accessing finance, securing contracts, and enhancing reputation, rather than just a compliance burden.
Focus on Materiality and Value Creation: Businesses should continue to focus on robust, material ESG data that genuinely impacts their financial performance and long-term value, as this is what investors and banks will ultimately seek, regardless of regulatory thresholds.
IV. Why This Signals ESG’s Shift Toward Value Creation
Regulatory scrutiny is maturing: Simplification doesn't signal retreat—it reflects a move toward smarter, proportional regulation that supports meaningful disclosures, not box-teasing. Simplification and harmonisation usually signal that regulations are here to stay.
Focus on materiality and decision-usefulness: The new ESRS promotes double materiality with fewer data points, enhancing clarity, comparability, and business relevance.
Leveling the playing field: By aligning CSRD and CSDDD terminology and enforcing consistency across member states, companies can better integrate ESG considerations into cross-border strategy and governance.
These trends are reshaping ESG from a regulatory obligation to a strategic opportunity—setting the stage for deeper financial and operational integration.
V. Embedding ESG into Business Transformation and Value Creation
Measuring ESG’s ROI is on the table: Now more than ever, companies need mechanisms to measure ESG’s financial impact. A Return on Sustainability Investment (ROSI™) framework has recently emerged, linking ESG strategies (e.g., energy efficiency, sustainable sourcing, employee wellbeing) to financial outcomes (like cost savings, revenue growth, and risk reductions).
To ensure that ESG Compliance and Net Zero transition will deliver the strategic value, organizations must:
Integrate ESG in the business strategy and long-term thinking.
Embed sustainability into culture, governance, and tools.
Translate ESG commitments into implementation plans and business metrics.
Unify cross-functional units to align goals and accountabilities.
Optimize compliance processes and optimize spend.
Embed ESG KPIs into budgeting, forecasting, and capital allocation.
Evaluate and price ESG risk for resilient, value-oriented decisions.
Conclusion
The recent Omnibus reforms show ESG reporting is maturing. This evolution sets the foundation for ESG to emerge as a strategic growth lever, not merely compliance. Like every significant regulatory shift, once the ESG framework settles, it will become an integral part of "business as usual." For sustainability, this means securing a permanent place in the core strategy of the business, driving its value creation, and being executed with utmost efficiency.
By combining board-level ambition, robust measurement and effective execution, companies can fully harness ESG to drive resilience, innovation, and long-term value creation.
Message me on LinkedIn — Madiha Mouchtak, MBA — to explore how we can support you on optimizing your business transformation, ESG-compliance, and value creation journey.