Guy GRESHAM – Board Member of Strategy&Ops Consultancy.
The European Union’s Simplification Omnibus I & II, announced on February 26, 2025, significantly reduces corporate sustainability reporting and due diligence requirements as part of a broader effort to cut regulatory burdens. While this move aims to enhance European competitiveness, it carries substantial implications for Australian and New Zealand businesses engaged with EU markets.
With investor expectations, supply chain demands, and regulatory divergence still evolving, companies must consider how these changes impact compliance, market access, and investment attractiveness.
What’s Changing?
• Corporate Sustainability Reporting Directive (CSRD)
o Threshold raised: Now applies only to companies with over 1,000 employees, exempting ~80% of previously covered firms.
o Sector-specific reporting requirements removed, and implementation delayed to 2028 for mid-sized companies.
o Voluntary reporting encouraged, but investors and buyers may still require disclosures from companies outside the mandatory scope.
• Corporate Sustainability Due Diligence Directive (CSDDD)
o Scope reduced: Companies must assess only direct (Tier 1) suppliers, rather than their full supply chains.
o Compliance delayed to July 2028, giving businesses additional time to align.
o Large EU buyers may still require supply chain sustainability assurances, regardless of regulatory mandates.
• Carbon Border Adjustment Mechanism (CBAM)
o A new exemption for importers bringing in less than 50 tons per year of carbon-intensive goods.
o This change removes about 90% of importers from compliance, though these represent only 1% of covered emissions.
o Large exporters must still prepare for carbon pricing impacts.
Implications for Australian & New Zealand Businesses
For Exporters to the EU
• Resources, mining, and energy companies: CBAM remains a key factor for exporters of aluminum, iron, steel, cement, fertilizers, and other high-emission products.
o While small-volume exporters may qualify for exemptions, large producers must still comply with EU carbon pricing.
o Strategic decarbonization efforts (e.g., cleaner production, carbon offsets) could improve competitiveness in EU markets.
• Agriculture & food exporters:
o While CBAM does not yet apply to food products, the EU continues to tighten sustainability expectations for agricultural imports, particularly around deforestation-free supply chains, emissions reduction, and ethical sourcing.
o Large European buyers may still require ESG disclosures from suppliers, even if not mandated by law.
For Financial Services & Banks
• Australian and NZ financial institutions must be aware of EU-driven ESG finance trends, as many global investors remain committed to sustainability integration.
• Banks and asset managers with European exposure may still need to align with voluntary EU sustainability disclosure standards.
• Sustainable finance remains a priority, with European investors directing capital toward low-carbon and responsible investment opportunities.
For Companies with EU Subsidiaries or Operations
• Businesses with a physical footprint in the EU should reassess whether their subsidiaries are still covered under CSRD.
• Even if exempt, multinationals may still be required to report ESG data at the group level.
• Delayed implementation timelines provide breathing room, but voluntary alignment with ESG reporting frameworks could strengthen competitive positioning.
For Companies Seeking European Investment
• Investor expectations remain unchanged.
• Major institutional investors in Europe—and US-based investors with European clientele—continue to prioritize sustainability disclosures, regardless of regulatory rollbacks.
• Companies that voluntarily maintain robust ESG reporting and governance structures will remain more attractive to global capital markets.
Investor & Market Reactions: Reading the Tea Leaves
The regulatory rollback has divided stakeholders. While many businesses welcome reduced compliance burdens, investors and sustainability advocates are raising concerns about transparency gaps.
• Some investors see risk exposure rising:
o A coalition of 200+ institutional investors managing over €6.6 trillion has warned that removing mandatory sustainability reporting will create inconsistencies, making it harder to assess ESG risks.
o Large European pension funds and asset managers continue to call for voluntary ESG disclosures to remain a standard practice.
• EU buyers are likely to maintain ESG expectations:
o Even with looser regulations, many large European corporations remain committed to sustainability goals and will continue requiring ESG disclosures from suppliers and business partners.
o This means that companies seeking European contracts will still need strong ESG positioning.
• Sustainable finance will still influence investment flows:
o European sustainable investment funds remain active, and many US-based investors catering to European clients are still governed by EU ESG frameworks.
o Companies failing to demonstrate sustainability performance could find themselves excluded from investment opportunities.
Key takeaway: Market forces will continue shaping sustainability expectations, even if regulatory compliance is reduced. Proactive companies can differentiate themselves through voluntary ESG leadership.
Strategic Considerations & Next Steps
- Evaluate EU Market Exposure
o Map your company’s direct and indirect exposure to EU markets, including exports, supply chain links, and investor relationships.
o Identify whether your subsidiaries, suppliers, or partners will still be subject to reporting requirements. - Enhance Voluntary ESG Reporting & Strategy
o Even if exempt from CSRD, maintaining a clear sustainability narrative is critical for investor and customer confidence.
o Consider aligning with international reporting standards (e.g., ISSB, GRI) to demonstrate transparency and leadership. - Strengthen Supply Chain ESG Oversight
o EU buyers will continue to demand ESG data—companies should ensure direct suppliers meet sustainability expectations, even if full supply chain due diligence is no longer mandated.
o Establish strong supplier engagement and ESG compliance mechanisms to maintain trade relationships. - Prepare for Carbon Pricing & Transition Risk
o Large exporters of carbon-intensive goods must prepare for ongoing CBAM compliance and explore low-carbon alternatives to maintain competitiveness.
o Monitor how carbon pricing frameworks evolve in global trade agreements, as similar mechanisms may emerge in other jurisdictions. - Engage with Investors & Financial Markets
o European and US investors with global ESG mandates will continue to prioritize sustainability leadership.
o Companies seeking capital should ensure strong voluntary disclosures and alignment with sustainability frameworks to attract investment.
Final Thoughts
The EU’s regulatory recalibration is not a retreat from sustainability, but a shift in approach. While compliance burdens may ease, the fundamental direction of ESG expectations remains unchanged—particularly among investors, major buyers, and financial institutions.
For Australian and New Zealand companies, this is an opportunity to adapt strategically, reinforce sustainability commitments, and leverage voluntary ESG leadership as a market differentiator.
Would be keen to hear how your business is responding to these shifts—how are you balancing regulatory changes with long-term sustainability positioning? Let’s discuss.