EU Omnibus Directive: Sustainability Rules at a Crossroads 2026

Will the EU Omnibus performance meet its promise?
California’s climate reporting laws debated in court hearing
U.S. EPA eliminates its obligation to weigh the costs and benefits for human health
Environment dominates the WEF long-term risk report
Courts preserve clean energy programs

As the dust settles on Europe's efforts to simplify sustainability rules - the so-called ‘Omnibus Simplification’ package - stakeholders are concerned that the outcome may fall short of the objectives.

The Omnibus promised to increase EU competitiveness and reduce compliance burden by at least 25% (35% for smaller companies) by simplifying rules - all while maintaining the goals of the Green Deal.

Some suggest the new scope undermines the objectives of the Green Deal. Prof. Andreas Rasche, who shared the infographic below, showing the numbers of companies covered under the Corporate Sustainability Reporting Directive (CSRD) per European member state. Prof Rasche said, “For Member States, reduced transparency will make it harder to distinguish leaders from laggards. This can undermine evidence-based policymaking.”

A cost-benefit analysis from the European Financial Reporting Advisory Group (EFRAG) this week finds that most investors are concerned that simplifying the ESRS will reduce the quality of sustainability information.

55% of information users (67% among investors and financial institutions) believed the simplified disclosure standards would negatively affect information quality.
The four main concerns from information users on the effects of the reduction in datapoints are:
Lower comparability (52%);
Loss of critical climate data (ESRS E1) (45%);
Loss of critical environmental data other than climate (43%); and
Less information overall due to fewer mandatory metrics (43%).

The report shows that over the next four years (2027-31), simplifications to the ESRS will reduce reporting costs for EU companies by up to 44% (equating to €4.7 billion). However, the report notes that there will be no impact on competitiveness (a key goal of the Omnibus), saying “The revision is not expected to have significant effects on the competitiveness of preparers.”

A PRI article on the implications of the Omnibus for investors claims the cost reductions for reporting companies will now be borne by investors. It also claims that the diminished comparability, scope, and value chain requirements will “increase reputational and legal risks for investors.”

2. California Climate Rules in Court

The California Climate Rules had their first hearing in the 9th District Court last Friday. You can watch the hearing here (it's pretty dry with a lot of lawyer-speak). In summary, the plaintiffs claim the laws requiring climate risk (SB 261) and emissions (SB 253) reporting constitute compelled speech (when the state forces someone to convey a message they would not otherwise choose to express), which is unconstitutional under the 1st amendment to the US Constitution. The defendant, the California Air Resources Board (CARB), claimed that the laws regulate the disclosure of commercial speech, which would not be in this category.

The panel of three presiding judges asked multiple questions around the scope of the two laws, and in particular around the “severability” of Scope 3 – supply chain emissions. Under SB 253, reporting supply chain emissions starts in 2027. The Court’s questions may signal that Scope 3 reporting is at risk.

The panel did not reach a conclusion on the current injunction on SB 261, stating they would issue a verdict in due course, which is expected in the coming weeks.

Notably, despite the injunction, more than 50 companies have already voluntarily submitted climate risk reports.

3. U.S. Will Not Consider Health Costs of Emissions

This week, the Trump administration reversed a decades-old Environmental Protection Agency (EPA) policy that considers the costs and benefits to public health of regulating air emissions (e.g., preventing asthma and premature death). The plan, revealed by the NYT, is that the EPA will no longer consider the health-related costs and benefits of limiting two key air pollutants: Particulate Matter (PM2.5) and Ozone, both of which are known to be harmful to human health.

This would be a fundamental shift for an agency founded to protect public health and the environment. One estimate suggests that for every $1 spent on reducing PM2.5, $77 in health costs are saved. Richard Revesz of the New York University School of Law said, “The idea that E.P.A. would not consider the public health benefits of its regulations is anathema to the very mission of E.P.A.”

4. Pre-Davos: Environmental Risks Dominate in the Long-Term (if we have a long-term)

There was a huge shake-up in the World Economic Forum’s annual Risk Report for 2026. Extreme weather risks fell to #4 (#2 in 2025), and geoeconomic confrontation rose to #1 (#9 in 2025), the shake-up no doubt due to the seismic shifts to the world order emanating from the Trump administration.

However, as last year, the long-term is dominated by environmental risks, with climate and nature risks ranking first and second, respectively. Notably, geoeconomic confrontation and state-based armed conflict drop out of the 10 year view - we are guessing they get resolved one way or another!

This raises the question: how can we prevent long-term environmental risks if they are not a priority today?