The regulatory recalibration of 2025 began in February, when the European Commission presented its Omnibus simplification package. Intended to address growing concerns around implementation complexity and competitiveness, the proposal immediately introduced a period of uncertainty for companies. Questions emerged around scope, timing and the future stability of the EU sustainability framework, particularly for organisations preparing to enter the next waves of CSRD and CSDDD obligations.

A first concrete response came in April 2025, with the adoption of the “stop‑the‑clock” directive. This measure provided short‑term legal clarity by postponing the entry into application of key obligations. The application of the CSRD was deferred by two years for large companies that had not yet started reporting. In parallel, the transposition deadline and the first phase of application of the Corporate Sustainability Due Diligence Directive (CSDDD) were postponed by one year.

After months of debate and shifting expectations, the regulatory direction was formally confirmed with the adoption of the Omnibus package in December 2025. Rather than dismantling the EU sustainability framework, the package embedded simplification and proportionality as guiding principles, and introduced revised thresholds and application principles across key instruments.

CSRD

Under the CSRD and the ESRS, the scope of mandatory reporting is significantly narrowed. Only EU companies with more than 1,000 employees and annual turnover exceeding €450 million now fall within scope^[DF1], as well as non‑EU companies with significant activities in the EU and generating more than €450 million in turnover within the Union. Alongside, the ESRS entered a phase of prospective simplification. Building on feedback from the first CSRD reporting cycle, EFRAG submitted its final technical advice in early December 2025, proposing targeted simplifications to the standards. These proposals aim to reduce complexity, clarify data points and strengthen proportionality. The European Commission must now assess EFRAG’s proposal and is expected to adopt simplified ESRS through a delegated act.

CSDDD

For the CSDDD, due diligence obligations were refocused on the largest corporations, namely those with more than 5,000 employees and turnover above €1.5 billion. The directive now concentrates primarily on direct business relationships, while explicit requirements to publish a transition plan aligned with the Paris Agreement were removed.

Taken together, presentation of the Omnibus package in February, the stop‑the‑clock directive in April, and final adoption in December illustrate how 2025 became a year of uncertainty for companies. Sustainability regulation remained a strategic priority for the EU, but its trajectory was reshaped by economic considerations with lasting implications for how companies plan and implement their ESG strategies.

In the absence of expanded EU reporting obligations for smaller entities, the Voluntary Sustainability Reporting Standard for SMEs (VSME) began to emerge as an important reference in 2025. The VSME was formally adopted by the European Commission in July 2025 as a recommendation, granting it official recognition as a European reference standard for sustainability reporting by SMEs.

This recognition is closely linked to introduction of the value‑chain cap, which limits the information that companies subject to the CSRD may request from other companies in their value chain. Under this principle, companies falling outside the scope of the CSRD are entitled to limit their responses to sustainability information requests from larger firms to the content of the VSME only, thereby protecting smaller companies from disproportionate data requests^[DF2].

Finalised by EFRAG, the VSME provides SMEs with a structured and proportionate reporting framework, aligned with the logic and architecture of the ESRS, while remaining adapted to their size and resources.

For many SMEs, the VSME is therefore set to become a market‑driven minimum standard, filling the gap created by narrowed CSRD scope and responding to continued ESG information requests from stakeholders.

2025 was the year in which the first full wave of CSRD sustainability reports was published and analysed. This initial reporting cycle concerned large public‑interest entities reporting on 2024 data and provided the first concrete insight into how the new framework operates in practice.

The first disclosures revealed a clear gap between regulatory ambition and operational readiness. Companies with mature governance structures, clearly defined data ownership and prior experience in non‑financial reporting generally performed better. By contrast, many organisations struggled with data availability, consistency and traceability. In some cases, sustainability information remained fragmented across systems and functions, making it difficult to produce reliable, easily accessible disclosures. Double‑materiality assessments proved particularly demanding, and value‑chain disclosures highlighted the limits of existing data flows and supplier engagement, especially for topics extending beyond direct operations.

Beyond implementation challenges, the first CSRD reporting cycle revealed a significant disparity in the quality, depth and level of detail of published reports. While some companies delivered comprehensive, well‑structured and transparent disclosures, others relied on more descriptive or high‑level narratives, reflecting differing levels of maturity and preparedness.

The 2025 reporting cycle also offered an unprecedented view into how companies prioritised ESG topics in practice. Environmental topics—particularly E1 climate change, energy use and emissions—dominated disclosures, reflecting both expectations and relative data availability. At the same time, many companies identified additional material issues such as biodiversity, pollution and circularity, even where data remained immature. On the social side, S1 own‑workforce topics were consistently identified as material—notably health and safety, working conditions, diversity and skills. By contrast, labour issues within the value chain were often acknowledged but less developed, underlining the difficulty of translating policy commitments into operational visibility and reliable data.

Overall, the first CSRD reporting cycle confirmed a broader insight: CSRD compliance is less a reporting exercise than a systems‑and‑governance challenge. ESG maturity is not defined by the number of topics covered, but by the depth, coherence and reliability of the information disclosed, supported by robust data processes, internal controls and cross‑functional coordination.

In line with the broader trend of regulatory simplification and postponed obligations, 2025 was also marked by uncertainty around the EU Green Claims Directive. In June 2025, the European Commission proposed withdrawing the directive from the legislative agenda, effectively placing it on hold pending further political discussion.

The Green Claims Directive was originally designed to address misleading sustainability claims by requiring companies to substantiate green claims with robust, science‑based evidence. It aims to harmonise rules across the EU, introduce minimum substantiation requirements, and strengthen verification mechanisms in order to protect consumers and ensure fair competition.

Crucially, the pause at EU level did not lead to reduced scrutiny. On the contrary, 2025 saw intensified attention to sustainability claims from national authorities, consumer‑protection bodies and market actors. In the absence of a harmonised EU framework, enforcement became more fragmented, with sustainability‑information users increasingly challenging unsubstantiated environmental and social assertions—particularly those perceived as vague, absolute or unsupported by data.

This dynamic reinforced a growing fatigue around greenwashing. Stakeholders became less receptive to broad sustainability statements and more demanding in terms of clear, quantified and comparable information. Expectations increasingly focused on data that can be benchmarked over time and against peers, supported by transparent methodologies rather than narrative claims.

In this context, the importance of audit readiness becomes more visible—even beyond mandatory reporting obligations. Companies are increasingly expected to ensure that sustainability claims—whether used in sustainability reports, websites or commercial communications—are based on verifiable ESG data, supported by documented methodologies and internal controls, and capable of being subject to independent assurance. The ability to demonstrate consistency between ESG disclosures, underlying operational data and public claims emerges as a key credibility factor.

As with other sustainability topics, nature‑related regulation was subject to simplification and postponement. A clear example was the decision to delay application of the EU regulation on deforestation‑free products (EUDR), which was adopted but whose entry into application was postponed to 30 December 2026. The delay was introduced to give companies additional time to prepare for complex operational requirements.

Despite this regulatory moderation, biodiversity and nature‑related issues gained further strategic traction in 2025. Companies increasingly acknowledge that biodiversity loss is not solely an environmental concern, but a business risk with direct implications for supply‑chain resilience, access to natural resources and licence to operate. This shift is particularly visible in sectors exposed to land use, water dependency and raw‑material sourcing, where nature‑related disruptions translate into tangible operational and financial risks.

In this context, the European Commission also launched the “Roadmap towards Nature Credits” in 2025, aiming to incentivise private investment into actions that protect and preserve nature. This step shows that the way we value nature is shifting towards a common language and underscores that nature is crucial for a resilient economy.

Over the course of the year, biodiversity began to move closer to the level of attention traditionally reserved for climate and decarbonisation. While still less mature in terms of metrics and data availability, the topic benefited from clearer conceptual framing and growing convergence around common reference points. In this respect, the increasing prominence of the Taskforce on Nature‑related Financial Disclosures (TNFD) played a central role, echoing the trajectory previously observed with climate under the TCFD.

A key milestone in 2025 was confirmation by the ISSB that its future standard‑setting work on nature‑related disclosures will draw on the TNFD framework—including its recommendations, metrics and guidance—reinforcing its status as the leading conceptual foundation for nature‑related financial disclosures. Earlier in the year, the IFRS Foundation and the TNFD also announced a formal collaboration aimed at enabling nature‑related financial disclosures for capital markets. This partnership further strengthens the signal that biodiversity is progressively being integrated into mainstream financial and risk‑reporting discussions, rather than remaining a purely environmental topic.

Beyond disclosure frameworks, 2025 also highlighted the limits of current corporate readiness on biodiversity. Data remains highly location‑specific, fragmented and difficult to aggregate at group level. As a result, most companies focused on understanding dependencies and exposure rather than setting quantified targets. This cautious approach reflected growing realism: credible biodiversity strategies require methodological clarity, prioritisation and alignment with operational decision‑making.

Overall, 2025 confirmed that biodiversity is no longer peripheral—but it is also not yet at the same level of maturity as climate. Its strategic relevance is increasing, driven less by immediate regulatory pressure than by risk awareness, investor interest and the gradual convergence of disclosure frameworks. As with climate a decade earlier, the challenge now lies in translating growing attention into robust, decision‑useful information and operational integration.

Ten years after the Paris Agreement, 2025 marked a moment of sober assessment rather than renewed ambition. Despite a decade of climate commitments and regulatory initiatives, the global trajectory remains clearly misaligned with the 1.5°C objective, which increasingly appears out of reach. This conclusion was widely shared across scientific, policy and business discussions throughout the year. In this context, simplification of regulatory instruments is unlikely to help close this gap.

At the same time, the European Union reaffirmed the long‑term direction of its climate policy. The objective of climate neutrality by 2050 under the European Green Deal remains unchanged, and in July 2025 the EU confirmed an ambitious intermediate target for 2040, aiming for a 90% reduction in greenhouse‑gas emissions compared to 1990 levels.

At corporate level, climate momentum largely continued. For many companies, climate action in 2025 was driven less by regulatory pressure and more by physical climate risks, financial exposure and market expectations. Extreme weather events, supply‑chain disruptions, and rising adaptation and insurance costs reinforced the business relevance of both climate mitigation and adaptation.

Operationally, carbon accounting continued to mature. Scope 1 and Scope 2 emissions are now relatively well understood and managed across many organisations, including SMEs, with established measurement approaches and identified reduction levers. Scope 3 emissions remain more challenging, but continued to receive significant attention, as companies expanded inventories, engaged suppliers and followed ongoing discussions around methodological improvements under the GHG Protocol.

More broadly, transition planning continues to move into core strategic decision‑making. Transition plans are increasingly assessed not only on their ambition, but on their feasibility and contribution to long‑term value creation—rather than on long‑term net‑zero statements alone. At the same time, physical and transition risks are progressively embedded into enterprise‑risk‑management frameworks and capital‑allocation decisions, reflecting a closer link between climate strategy and business performance.

Overall, 2025 underscored a structural reality: regulatory adjustments may alter the pace of implementation, but they do not change the direction of travel. Ten years after Paris, the 1.5°C objective continues to serve as a reference point and corporate climate strategies are increasingly shaped by risk management and strategic decision‑making.

It is difficult to reflect on sustainability in 2025 without addressing the rapid rise of artificial intelligence. Over the course of the year, AI moved decisively from experimentation to widespread deployment across sustainability functions. What was once perceived as an emerging capability became, for many organisations, an operational component of ESG management.

In practice, AI‑enabled tools were increasingly used to support sustainability reporting, data management and risk analysis. Companies leveraged AI to consolidate ESG data from disparate systems, automate data extraction, map regulatory requirements, screen suppliers and identify gaps or inconsistencies in sustainability information. These tools helped reduce manual effort, accelerate reporting cycles and improve traceability.

However, 2025 also highlighted the limits of AI in sustainability. While tools can process large volumes of data and identify patterns, they cannot replace judgement, context or accountability. Materiality assessments, methodological choices, assumptions and trade‑offs remain human decisions. As a result, AI increasingly functions as a support tool rather than a substitute for expertise.

At the same time, the environmental footprint of AI itself became more visible. Growing computing power, data‑storage requirements and model training raised increasing questions around energy and water consumption, as well as associated emissions. In a sustainability context, this created a new tension: while AI can improve efficiency, transparency and decision‑making, it also carries an environmental cost that must be acknowledged and managed.

2025 was not a pause in the sustainability journey; it was a recalibration. While regulatory simplification is likely to persist, it no longer defines the pace of corporate sustainability on its own. Instead, market‑driven dynamics increasingly shape priorities and timelines.

As companies move into 2026, the focus is expected to shift from interpreting regulatory change to embedding sustainability into day‑to‑day decision‑making and actions. This includes strengthening ESG information systems, improving data quality, and integrating sustainability considerations into core operational and strategic processes. External assurance and internal controls will continue to play an important role as ESG information is used more directly to inform business decisions, capital allocation and stakeholder dialogue.

Ultimately, organisations that can translate sustainability commitments into credible, decision‑useful outcomes will be best positioned to build resilience, maintain stakeholder trust and support long‑term value creation—regardless of how the regulatory landscape evolves.

And if you are ready to advance your sustainability initiatives in 2026, aiming to stay ahead of market expectations, do not hesitate to reach out; our team stands ready to support you in turning ambition into measurable progress.