GT verdict: The omnibus is pulling the ESG handbrake. But again, Europe says neither so nor so

For years, the European Union has set the pace in ESG regulation, sustainable financing and green transformation. But now it seems to be pulling the handbrake. The new Omnibus package, which fundamentally changes ESG reporting obligations, comes at a time when Europe is facing several challenges at once: geopolitical uncertainty, fears of trade wars and growing pressures on competitiveness. So, can we read the European Commission’s proposals as a clear signal that climate protection must give way to pragmatism in this new world order?

Companies see ESG reporting as a double-edged weapon. On the one hand, it helps them to better structure their sustainability strategies, identify risks and improve their reputation with investors. On the other hand, it burdens them with high implementation costs and complex administration. Smaller companies, in particular, often lack the internal capacity to set up ESG reporting effectively, which puts them at a disadvantage compared to larger players with more robust resources. In fact, our practical experience shows that companies that integrate ESG into their strategies gain a long-term advantage over competitors that only address ESG formally.

The reduction of mandatory reporting under the Omnibus will reduce the administrative burden for smaller companies, but will also lead to less availability of ESG data in the market. Companies that opt out may experience temporary relief, but risk being seen as less transparent to investors and business partners. For large companies, the impacts will be mainly in the area of supply chain management – simplification of requirements may lead to lower traceability of ESG aspects at subcontractors, which may ultimately reduce the overall effectiveness of ESG policy in the European market.

The European Commission’s package of proposals comes in response to growing opposition from the business sector. Multinational companies and European businesses complained about the disproportionate administrative costs and argued that Europe has made ESG a regulatory luxury it can no longer afford in the competition with the US and China.

That makes sense. At a time when the US is reassessing its climate commitments under the new administration and when China is oscillating between environmental commitments and the need to maintain growth, Europe cannot afford to be the only economic block to impose strict environmental conditions on its business. In this context, the Omnibus appears to be a politically necessary step.

But is it enough? Is it not just a half-hearted solution that is so typical of Europe? Cutting back on regulation without a long-term strategy can lead to companies falling into a grey zone – not having clear rules, but also coming under pressure from investors and the public who will continue to demand ESG requirements. Moreover, the planet does not have time to wait for Europe to get its priorities straight. If we give way to ESG today, won’t we have to make up for lost time with even more radical measures in the future?

Probably. And that is perhaps the biggest weakness of this change. Instead of a clear strategy, what we get is a compromise that reassures companies but does not provide long-term certainty for them, for investors or for those who want a more sustainable future. The omnibus thus remains a symptom of European politics: trying to balance everything so that it does not hurt anyone too much – which often means that it does not bring real change for anyone at all.

So, what advice can we give to companies in this situation?

Do not see ESG as a regulatory hurdle, but as a tool for strategic development. Companies that are proactive about ESG can identify new market opportunities, improve their efficiency and increase their credibility with stakeholders.

Don’t panic. Transparency and sustainable management remain key factors for long-term competitiveness. Companies that see ESG as a mere bureaucratic obligation can breathe a sigh of relief in the short term, but in the long term they risk being hit with an expensive bill from the market.

The text was originally published as a commentary for the daily Hospodářské noviny.