2025 in review and a look into 2026
2025 has tested sustainability like never before. Around the world, sustainability rules have come under scrutiny, geopolitical tensions have intensified, and global economic volatility has created challenges with wide-reaching impact.
Changes in key policies, from the EU’s sustainability reporting and due diligence directives to the deforestation regulation, have left many companies unsure how to navigate increasing complexity and uncertainty. Maybe even yourself?
Yet the need for decisive action has never been clearer. The climate crisis has become a financial crisis, and today’s geopolitical pressures are driving companies to build resilient, long-term business models capable of withstanding disruption and uncertainty.
The core question for 2026: How do you maintain position and ambition when the world demands pragmatism?
The Omnibus package - Europe's regulatory reset
The three forces that led up to the omnibus
The push for simplification didn't emerge in a vacuum. Several converging forces created momentum, where three stood out:
Mario Draghi's report (September 2024): Mario Draghi’s report argues that the EU is losing competitiveness against the US and China and needs radical reform and much higher investment to boost productivity, innovation, and resilience, or risk long-term decline.
The Budapest Declaration (November 2024): The EU leaders committed to simplify regulation, deepen the single market, mobilise investment, boost industry, defence, energy resilience and innovation, while staying climate-aligned.
Reality from the frontlines: First-wave CSRD companies reported that data availability challenges and system inadequacies made compliance burdensome
The result? A dramatic recalibration: 90% reduction in CSRD scope and 61% cut in ESRS data points. The message was clear, Europe needed to remain ambitious on sustainability while acknowledging practical implementation realities.
CSRD: The 90% reduction
What changed: The Corporate Sustainability Reporting Directive now applies only to companies with 1,000+ employees and €450 million in turnover, a 90% reduction in covered entities.
The agreement includes a review clause for possible scope extension, suggesting even policymakers recognise this may have swung too far in the opposite direction.
What you should do: If you're now out of scope, don't just get back to business as usual. Your larger clients and investors will likely still expect transparency. Consider voluntary alignment with simplified standards to maintain market position and prepare for potential scope expansion.
ESRS: From 1,073 to 320 data points
What changed: EFRAG's revised European Sustainability Reporting Standards slash required data points by 61%. All voluntary data points have been removed.
Key changes in the standards:
Flexibility introduced: Companies can now choose between top-down or bottom-up approaches for double materiality assessments, rather than following rigid step-by-step processes
Confusing terminology eliminated: The "gross vs. net" distinction is gone. Companies must report impacts when they occur and separately report remediation efforts
Better structure: An executive summary is now possible. Detailed tables move to appendices. Policies, Actions, and Targets can be described together rather than repeated across multiple sections
Financial effects deferred: Companies don't need to report anticipated financial effects until 2030, though they must explain why they're using this relief
Social data dramatically simplified: Social data points reduced by ~70% (S4, for example, dropped from 14 to 4 pages)
While simplification reduces burden, numerous exceptions and reliefs create flexibility that could enable greenwashing if not carefully managed. Reliefs like omitting information due to "undue cost or effort" should remain rare exceptions, not standard practice.
What you should do: The revised standards apply from FY 2027, with voluntary early application possible for FY 2026. Take a look at EFRAG's new Knowledge Hub (knowledgehub.efrag.org). ESRS/ISSB interoperability mapping is expected in the coming months to reduce duplicate reporting.
CSDDD: Due Diligence diluted
What changed: The Corporate Sustainability Due Diligence Directive now applies only to companies with 5,000+ employees and a €1.5 billion turnover. Phased entry begins in 2029, yet another year of delay. Climate transition plan requirements have been removed entirely.
What this really means: The due diligence approach has fundamentally shifted. The exclusive focus on tier-1 suppliers is gone; companies should instead "focus on areas where actual and potential adverse impacts are most likely to occur." No comprehensive supply chain mapping is required, only a scoping exercise.
The concerning part: When "adverse impacts are equally likely or equally severe in several areas," companies can prioritise direct business partners, essentially an invitation to sidestep the most difficult supply chain issues.
CBAM: Carbon Pricing Becomes Real in 2026
What changed: Threshold-based relief for small or low-volume importers, more flexible certificate purchasing rules, and increased use of default emissions values where supplier-specific data is unavailable. The transitional reporting phase ends December 31, 2025. From January 1, 2026, the definitive CBAM regime applies, introducing actual financial obligations for covered imports (cement, iron & steel, aluminium, fertilisers, electricity, and hydrogen).
What you should do: For 2026, ensure CBAM exposure is clearly mapped by product, volume and supplier. Emissions data collection processes must be robust, and internal ownership must be defined across sustainability, procurement and finance. While administrative requirements have been simplified, CBAM is moving into an enforcement and cost phase, and compliance and financial risks become real in 2026.
EU Taxonomy: Still here, still complex
What changed: Not much in substance, but targeted clarifications through the Omnibus include improved guidance on materiality, proportionality and the use of estimates; greater flexibility for companies with limited Taxonomy-eligible activities; and clarifications on Do No Significant Harm (DNSH) requirements.
What you should do: Move beyond compliance-only reporting. Use the Taxonomy as a strategic tool to understand which parts of your business are future-aligned, financeable and investable. Focus on identifying genuinely Taxonomy-eligible activities, applying proportionality where data gaps exist, and integrating Taxonomy thinking into CapEx planning and transition strategies.
Other Critical Regulatory Shifts
EUDR: The Deforestation regulation gets more time
What changed: Implementation postponed to December 30, 2026 for large operators and June 30, 2027 for small operators. Printed products are now excluded from scope.
Simplifications introduced: Only the first company placing a product on the EU market must submit due diligence statements; downstream operators and traders are exempt. Micro and small operators need only a one-off simplified declaration.
What you should do: Use this extra year wisely. Build robust traceability systems now for covered commodities (palm oil, cattle, soy, coffee, cocoa, rubber, wood). Start on geolocation data and supply chain mapping, don't wait for the Commission's April 2026 assessment report.
SFDR: Sustainable Finance disclosure gets a reboot
What's coming: The Commission proposed SFDR 2.0 in November 2025 to simplify disclosures and address existing shortcomings, making the framework clearer, more efficient, and better aligned with market realities.
Key changes proposed:
Removal of entity-level principal adverse impact indicators for Financial Market Participants
Significant reduction in product-level disclosures
New simplified ESG product categorisation: Sustainable (contributing to goals), Transition (credible path toward sustainability), and ESG basics (integrating ESG without meeting sustainable or transition criteria)
Timeline: Negotiations continue through 2026, with implementation expected around 2028. Follow Ethos on LinkedIn for more updates and keep track on our website.
More Omnibuses are coming
The Environmental Omnibus
The Environmental Omnibus aims to simplify and streamline EU environmental legislation while fully maintaining its environmental objectives. It addresses six key legislative areas, creating a more coherent and efficient framework for environmental protection across the European Union.
Industrial Emissions Directive: Flexibility in Environmental Management Systems, simplified requirements, extended deadlines to 2030
Waste Framework Directive: Repeal of SCIP database, paving the way for Digital Product Passport
INSPIRE & Open Data Directives: Harmonisation to reduce costs and improve geospatial data access
Environmental Assessment Directives: Streamlined permitting and faster assessments
Extended Producer Responsibility: Temporary suspension of authorised representative requirements
Circular Economy Projects: Toolbox measures to accelerate strategic projects
Next steps: Proposals submitted to Parliament and Council; further simplification expected in 2026 via the Circular Economy Act and REACH revisions.
The Clean Industrial Deal - Europe's strategic gambit
Launched alongside the Environmental Omnibus I, the Clean Industrial Deal represents the EU’s effort to balance ambitious climate and environmental goals with industrial competitiveness. It seeks to ensure that European industries can lead the green transition without losing ground to global competitors. By supporting innovation, promoting clean technologies, and facilitating investment in sustainable production, the deal aims to drive decarbonisation, secure jobs, and strengthen the EU’s strategic autonomy in critical sectors, all while keeping environmental commitments on track.
What's rolling out through 2026:
Industrial Decarbonisation Accelerator Act
Industrial Decarbonisation Bank proposals
Revised public procurement rules favouring clean products
Extended Innovation Fund instruments
CBAM refinements
Support for Important Projects of Common European Interest (IPCEIs) and strategic supply chains
Other Trends to Watch in 2026
The regulatory agenda for 2026 remains full despite simplification efforts:
Q1-Q2 2026:
CBAM definitive regime enforcement begins (January 1)
EUDR compliance preparations intensify (December deadline approaching)
First Clean Industrial Deal details will be published, see above
Commission's EUDR assessment report (due April 30)
H2 2026 and beyond:
Circular Economy Act expected
Energy Performance of Buildings Directive implementation
Packaging and Packaging Waste Regulation clarity
Pay Transparency Directive alignment with ESRS
Ecodesign Regulation product requirements
Possible CSRD scope extension review
CSDDD implementation guidance
Further omnibus packages are likely
Conclusion: The Direction Hasn't Changed - Only the Path
2025 taught us that sustainability regulation no longer follows a predictable path. Geopolitical instability and economic pressures have created an environment where the rules can shift quickly and dramatically. While Europe has recalibrated its sustainability agenda, the underlying global challenges remain as urgent as ever.
2024 was the warmest year on record since 1850. 2025 continued that trend. Floods, hurricanes, droughts, and heatwaves are disrupting supply chains, damaging infrastructure, and halting production. Temperature and precipitation changes affect agriculture and transportation networks, leading to material shortages, rising costs, and unpredictable delays. Supply chain resilience is no longer optional; it's essential for survival.
Climate change is triggering a global financial crisis by systematically destroying insurability, the foundation upon which modern finance operates. As extreme weather intensifies, insurance premiums must rise to reflect actual risk, but there is a hard ceiling: what people and businesses can afford. When premiums exceed this threshold, insurance doesn't become expensive; it vanishes entirely. Allianz warns that coverage becomes impossible at 1.5°C-3°C warming levels, and we're already seeing withdrawal: California wildfires, Florida hurricanes, Australian cyclone zones, Mediterranean floods, and complete exclusion across climate-vulnerable regions in South Asia, Southeast Asia, and sub-Saharan Africa.
“The regulatory landscape may be shifting, but the fundamental challenges driving the sustainability agenda haven't changed. If anything, they've intensified.
For organisations navigating 2026, three things are clear:
Adaptability matters more than ever: the ability to respond to regulatory shifts while maintaining strategic direction
The direction of travel remains the same: toward transparency, accountability, and genuine impact, even if the speed and scope fluctuate
Those who can navigate complexity, maintain stakeholder trust, and deliver real impact will emerge stronger
The history books will indeed remember 2025 as the year sustainability regulation was reset. What they'll say about how your organisation responded remains to be written.
If you are a sustainability professional still a bit confused about what’s next, here’s a quote from our CEO:
As long as global challenges like climate change, inequality, and corruption exist, we have a reason to go to work every day."
You are more needed than ever. And we hope that we, together, can make sustainability an integrated part of how we do business in 2026 and in the future.
Want to discuss how these changes affect your organisation in detail? Contact us to explore your strategic approach to 2026.
Contact Ethos:
Amanda Hagberg
Director of Orgnaisational Development, Ethos
amanda.hagberg@ethos.se
About Ethos
Ethos is one of the Nordic region’s oldest and leading sustainability-focused consultancies, with over 35 experts covering environmental issues, human rights, and anti-corruption. We help medium to large companies and financial market actors address sustainability challenges—from strategic boardroom decisions to operational policy compliance on the factory floor. Ethos tailors each project to clients' needs, supporting compliance with CSRD, SFDR, EU Taxonomy, and CSDDD regulations while guiding their strategic sustainability journeys.