wnp.pl: EU Council Changes the Rules of the Game. “Many Companies Will Face a Strategic Choice”

An article has been published on the decision of the Council of the European Union to adopt the Omnibus I package, which significantly reduces sustainability reporting and due diligence (ESG) obligations. The article features commentary from a PKF Polska expert – Magdalena Dominiak, ESG Managing Partner.

The decision adopted on 24 February materially changes the scope of corporate obligations and the amount of data available to investors. Brussels is clearly prioritising competitiveness and the reduction of bureaucracy, even at the expense of some of the EU’s original regulatory ambitions.

Fewer Companies, Fewer Obligations

The new thresholds mean that mandatory ESG reporting will apply only to the largest enterprises – those employing more than 1,000 employees and generating over EUR 450 million in annual net turnover.

For companies outside the EU, the EUR 450 million threshold applies to turnover generated within the EU, while EUR 200 million applies to a subsidiary or branch.

Companies that began reporting for the 2024 financial year may be exempt from reporting obligations for 2025–2026, provided that Member States implement the relevant national regulations. In practice, this means a two-year postponement and a significant reduction in regulatory pressure.

Due Diligence Only for the Largest Entities

Even more far-reaching are the changes to due diligence obligations. The new regulations will apply only to entities employing more than 5,000 employees and generating over EUR 1.5 billion in net turnover.

The obligation to develop a climate transition plan and the EU-wide civil liability regime have been removed from the regulations. Sanctions have been left to the discretion of Member States, with a maximum cap of 3% of global net turnover.

The changes were prompted by calls from the European Council in October 2024 to enhance the EU’s competitiveness in response to the reports by Enrico Letta and Mario Draghi, as well as the Budapest Declaration calling for a “simplification revolution”.

“The Market Will Decide Who Reports”

As Magdalena Dominiak emphasises:

Many companies will face a strategic choice: whether to withdraw from reporting or continue on a voluntary basis – and if so, under which standards. In practice, exemption from reporting in 2025 will be difficult to apply, so only 2026 will show whether companies still believe in the importance of ESG.

She points out that despite reducing regulatory obligations, the EU has not changed its climate neutrality priorities, while banks and investors treat non-financial data as seriously as financial data.

Transparency and reliable ESG management may become a mark of corporate maturity – especially if reporting ceases to be mandatory.

Companies that withdraw from sustainability efforts risk losing market position and access to capital.

At the same time, limiting obligations may reduce data comparability, as only reports prepared in accordance with the ESRS (European Sustainability Reporting Standards) will be subject to mandatory assurance.

What’s Next?

The legal act will soon be published in the Official Journal of the EU. Following publication, Member States will have one year to transpose the provisions into national law (with the exception of regulations that must be adopted by 26 July 2028). The new rules will apply from 2029.

At the same time, on 24 February, the Polish government adopted a draft amendment to the Accounting Act aligning national regulations with the Omnibus I package. This will allow certain companies to be exempt from ESG reporting for 2025–2026.

The EU Council’s decision means that investors will need to independently assess which companies genuinely implement sustainability policies. In practice, this may increase the role of ESG audits, analyses and voluntary reporting, with companies competing not only on financial performance but also on transparency and the credibility of their environmental and social actions.

The article is available at www.wnp.pl