Are Supply Chains Still at Risk Under EU Omnibus Reforms?

The EU’s sustainability reporting regime is getting a sharp rethink, with lawmakers narrowing who must comply and how.

The European Parliament’s Legal Affairs Committee (JURI) clears a draft Omnibus proposal that makes ESG disclosures simpler, more digital and more selective.

While this may cut red tape for some, the real test is in supply chains, where large firms still face legal exposure and suppliers find themselves navigating an uncertain ESG terrain.

The most direct change is who now qualifies for mandatory ESG reporting under the Corporate Sustainability Reporting Directive (CSRD) and EU taxonomy regulations.

The proposed thresholds raise the bar to companies with more than 1,000 employees and annual turnover above €450m (US$520m). This sharply reduces the pool of firms in scope, especially from the original European Commission proposal, which had already sought to slash coverage by 80%.

For those dropped from mandatory obligations, ESG reporting becomes voluntary, but still guided by EU standards. The Commission is also planning a digital portal with free templates and guidance. This would complement the European Single Access Point, which aggregates financial and sustainability data.

In parallel, the Corporate Sustainability Due Diligence Directive (CSDDD) is narrowed even more. For EU-based firms, only those with more than 5,000 employees and €1.5bn (US$1.73bn) turnover fall in scope. For non-EU firms, the trigger is €1.5bn EU turnover. This strips the legislation back to apply only to the largest market players.

That said, where the regulations retreat, the expectations do not.

Jörgen Warborn, Swedish MEP from the European People’s Party, says: "Today’s vote confirms our support for simplification.

"We are delivering predictability for European companies, with a report that cuts costs, strengthens competitiveness and keeps Europe’s green transition on track."

No room for pressure on smaller suppliers

The proposal also tries to balance the power dynamic between large businesses and their suppliers.

The draft explicitly prevents larger companies from demanding ESG data from smaller suppliers that goes beyond the voluntary guidance. Sector-specific disclosures would also become voluntary under the new rules.

This move may come as a relief to small and medium-sized enterprises (SMEs), which often face indirect ESG compliance costs through their involvement in large firms’ supply chains.

According to Stefan Premer, Director of Consulting at Sphera: “There will be a sigh of relief from businesses across Europe, as the agreement reached in the EU Parliament on the EU Commission’s Omnibus initiative brings much-needed clarity.”

He points out that the compromise raises the threshold to 1,000 employees, “excluding 90% of the companies needing to report before.” On due diligence, he adds, “the scope... has been significantly watered down to a few large companies with 5,000 employees or more.”

But such relief may be temporary. Even if smaller suppliers are exempt from direct reporting, larger firms still need ESG data from them to meet their own obligations, and that will likely keep pressure alive across supply chains.

Mariana Ferreira, Sustainability Policy Officer at the WWF European Policy Office, argues that scrapping civil liability from the CSDDD weakens the system: “This will severely gut the effectiveness of the law by undermining victims’ access to justice, eliminating enforcement and turning corporate due diligence into a toothless box-ticking exercise.”

Strategic opportunity or short-term shortcut?

The challenge now is not just regulatory compliance, but strategic alignment.

Jan Niewold, EY’s EMEIA Climate Change and Sustainability Services Leader, warns: “If the reduced obligations are simply used to maximise short-term profits or divert attention away from ESG, it risks undermining both sustainability performance and broader societal progress.”

He adds: “Strengthening governance and data integrity through robust internal controls, integrating ESG into corporate strategy and leveraging technology to streamline reporting will be essential.”

This shift presents a real test for supply chains. Though the legal reporting duty may fall only on the top tier of firms, their ability to map risk and ensure transparency will depend heavily on supplier cooperation.

Maintaining a “double materiality” approach – which considers both the company’s impact on people and planet, and how sustainability issues affect the company – becomes crucial.

Andromeda Wood, Vice President of Regulatory Strategy at Workiva, sees it as a wake-up call: “The latest vote brings us closer to clarity, but if the Omnibus process has shown us anything, it’s that a strict focus on compliance is not an effective approach to sustainability management.”

She notes that nearly 70% of chief financial officers expect higher returns from sustainability investments than from traditional capital outlays, and that 96% of investors link sustainability performance with better financial outcomes. Consumers, she adds, “are willing to spend 9.7% more, on average, for sustainably produced or sourced goods.”

As EU negotiations on CSRD and CSDDD continue, supply chain resilience will depend less on regulatory tick boxes and more on integrated strategy.

“The key to navigating regulatory uncertainty isn't just following the rules,” Wood says, “it's embedding sustainability into core business strategy.”

The EU Omnibus proposal may lighten the paperwork for some, but it raises the bar for how ESG is managed through supplier networks. Businesses that engage early, align processes and invest in transparency will be in the best position to adapt, comply and lead.