ESG and Sustainable Finance Compliance in Europe: 2026 Guide

On 3 July 2026, the European Commission adopted revised European Sustainability Reporting Standards, cutting mandatory datapoints by more than 60% and total datapoints by over 70%. It is the last major piece of the Omnibus I simplification package that entered into force on 18 March 2026 and, according to the Commission's own estimate, removed roughly 80% of companies from the Corporate Sustainability Reporting Directive's mandatory perimeter.

For compliance and reporting teams across the EU, UK and Switzerland, the practical effect is not less work, it is a moving target. Thresholds changed, due diligence duties were narrowed, fund labelling rules are being rebuilt from the ground up, and the UK and Switzerland are each running their own parallel timeline while watching Brussels for cues. A company that assumed it was safely out of scope in January 2026 needs to re-check that assumption today, and a company still in scope needs to know which version of ESRS it is reporting against.

This is the landscape ESG and sustainable finance teams in Europe are navigating heading into the 2027 financial year, the first year most of these changes actually bite.

Which companies still fall under CSRD after the Omnibus I scope cut?

Only undertakings with more than 1,000 average employees and net worldwide turnover above 450 million euros remain in mandatory CSRD scope, whether listed or not, following Omnibus I Directive (EU) 2026/470. Non-EU ultimate parent companies are caught if they generate more than 450 million euros of net turnover in the EU and have an EU subsidiary or branch turning over more than 200 million euros. Both thresholds are a sharp rise from the pre-Omnibus large-undertaking criteria, and they apply to financial years starting on or after 1 January 2027, meaning the first affected reports are due in 2028.

Member States have until 19 March 2027 to transpose the revised directive, and as of late June 2026 five of the 27 had still not enacted a compliant CSRD law, even for the earlier Stop-the-Clock Directive (EU) 2025/794 whose own transposition deadline was 31 December 2025. That gap matters: obligations only bite in a given country once its national law is in force, so the practical start date for CSRD reporting still varies by jurisdiction inside a directive that is supposed to be harmonised. Tracking which of the 27 transpositions has actually landed, and on what terms, is exactly the kind of per-jurisdiction monitoring that a platform like Obsidian is built to keep current automatically.

What do the revised ESRS adopted on 3 July 2026 change in practice?

The revised standards shorten and simplify the 12 European Sustainability Reporting Standards, streamline the double materiality assessment, and add new flexibilities on how narrative disclosures are structured. EFRAG's technical advice, delivered to the Commission on 3 December 2025, is the basis for the cuts, and the Commission itself expects the changes to lower reporting costs by more than 30% per company.

The delegated act revising ESRS and a second delegated act creating a voluntary standard for companies with up to 1,000 employees now go to the European Parliament and the Council for a two-month scrutiny period, extendable by a further two months, before they take legal effect. Application is intended for financial years beginning on or after 1 January 2027, with voluntary early use permitted from FY2026 for companies already reporting under the original ESRS Set 1. Until the scrutiny period closes, the ESRS Set 1 as amended by the Quick Fix Delegated Regulation (EU) 2025/1416, in force since 13 November 2025, remains the operative standard for Wave 1 reporters.

Has the CS3D due diligence duty survived Omnibus I intact?

No. The Corporate Sustainability Due Diligence Directive, Directive (EU) 2024/1760, was amended by the same Omnibus I Directive on 18 March 2026 in ways that go well beyond the CSRD changes. Scope is now limited to companies with more than 5,000 employees and more than 1.5 billion euros in worldwide turnover, due diligence obligations are narrowed to direct, Tier 1 business partners rather than the full value chain, the obligation to put a climate transition plan into effect was deleted, and the EU-wide harmonised civil liability regime was removed in favour of national law. Fines are now capped at 3% of net global turnover.

The Member State transposition deadline moved to 26 July 2028, with first application on 26 July 2029, three years later than the original 27 July 2027 start date. Companies that built value-chain due diligence programmes under the pre-Omnibus text now need to re-scope them around direct suppliers only, and legal teams should watch for the Commission's first CS3D due-diligence guidelines, due under Article 19 by 26 July 2027.

What is happening to SFDR fund labels under Omnibus II?

The Commission's Omnibus II proposal, COM(2025) 841 final of 20 November 2025 under procedure 2025/0361(COD), would replace the current Article 6, 8 and 9 fund categories with three new voluntary labels: Sustainable, Transition and ESG basics. It would also fully repeal the SFDR Regulatory Technical Standards, Commission Delegated Regulation (EU) 2022/1288, meaning the current Annex II to V templates and the 18 principal adverse impact indicators would move from Level 2 detail into simpler Level 1 categories, and would remove mandatory entity-level PAI disclosure for financial market participants with fewer than 500 employees.

The European Parliament's ECON committee appointed Gerben-Jan Gerbrandy as rapporteur on 29 January 2026 and his draft report followed on 28 April 2026. Adoption is not expected before 2027, with application likely phased in during 2028 and 2029, so current SFDR classifications remain legally binding in the meantime. Firms managing product disclosures across several EU jurisdictions are effectively tracking two SFDR regimes at once: the one in force today and the one being negotiated in Brussels.

Do UK and Swiss reporting rules still track the EU model?

The UK published final UK Sustainability Reporting Standards S1 and S2 on 25 February 2026, based on the ISSB's IFRS S1 and S2, currently available for voluntary use. The Financial Conduct Authority's Consultation Paper CP26/5 of 30 January 2026 proposes mandatory UK SRS S2 climate reporting for listed companies from financial years starting on or after 1 January 2027, with UK SRS S1 and Scope 3 emissions on a comply-or-explain basis, and final rules expected in autumn 2026.

Switzerland has taken the opposite approach: on 25 June 2025 the Federal Council paused its planned revision of the 2024 Ordinance on Climate Disclosures, which still applies to public companies, banks and insurers with at least 500 employees and either 20 million Swiss francs in total assets or 40 million francs in turnover, explicitly to wait for clarity on the EU Omnibus outcome. A decision on how far to align with ESRS or ISSB is now due by 1 January 2027 at the latest.

Three different regulators, three different clocks, and none of them synchronised, which is precisely the problem for a compliance team responsible for group-wide reporting across the EU, UK and Switzerland. Obsidian's per-jurisdiction monitoring tracks each of these tracks independently, with alerts the moment a delegated act clears scrutiny, a transposition law is enacted, or a national regulator publishes its next consultation.

What should a compliance team do next?

Start by re-checking scope against the post-Omnibus I thresholds rather than the pre-2026 ones: a company that qualified as a large undertaking in 2025 may no longer be caught by CSRD, or may fall out of mandatory CS3D scope even while remaining a supplier that in-scope customers ask questions of under Tier 1 due diligence. Then confirm which version of ESRS applies to the reporting year in question, since Wave 1 companies, early voluntary adopters and FY2027 first-timers may be working from different texts during the transition.

For teams tracking obligations across several jurisdictions at once, keeping a single, continuously updated view of CSRD, CS3D, SFDR, UK SRS and the Swiss ordinance side by side, rather than five separate spreadsheets, is where Obsidian's regulatory intelligence and its MCP for AI assistants earn their place: not as a substitute for legal judgment, but as a verified regulatory companion that surfaces the next deadline before it becomes a scramble. Explore current plans to see how Obsidian keeps pace with a landscape that changed twice in the same week this article was written.