Over the past few years, the EU’s sustainable finance framework has significantly shaped the financial industry’s approach for sustainability. Regulations like the CSRD, CSDDD, and SFDR have promised to create a common and harmonized structure for sustainability reporting and transparency. However, with the European Commission’s “simplification agenda,” and publication of the Omnibus package in early 2025, the Commission is now suggesting significant revisions to the sustainable finance framework.
While there was support for harmonizing sustainability related regulations and reducing complexity especially around CSRD disclosure requirements, the EU’s unexpected move to narrow the scopes of the CSRD and CSDDD came as an unpleasant surprise, especially to the financial industry. Essentially, proposing a 1,000-employee threshold for CSRD implementation would reduce the number of companies required to report by nearly 80% across the EU. In Finland alone, 1,170 companies could be exempt from CSRD obligations, leaving only 130 companies responsible for reporting under the directive. [1] The Omnibus proposal also affects the CSDDD. Companies would be required to assess only their direct suppliers instead of the whole value chain. Yet, it is precisely in the lower tiers of the supply chain where the most severe labor and human rights violations often occur.
In essence, while the Omnibus proposal is intended to simplify reporting for corporates, it simultaneously creates a challenging landscape for the financial sector. According to the Finnish Government, weakening the data foundation could impair the ability of financial institutions to conduct risk assessments, comply with EU law, and ultimately support financial stability. [2]
In other words, the needs and the goals for sustainable investment haven’t changed, but the means have been weakened by this proposal. The reduction in CSRD coverage hits especially hard when it comes to Principal Adverse Impact (PAI) disclosures under SFDR. Article 4 of SFDR requires that investors identify and report the negative effects of their investments on sustainability factors. This includes data – such as greenhouse gas emissions, biodiversity loss, and labor rights violations, originally intended to be standardized through CSRD and CSDDD, and essential not only for SFDR but also for EU Taxonomy alignment assessments. However, even in the current state, before Omnibus and the full implementation of CSRD and CSDDD, SFDR reporting was falling short of investor expectations. A Thematic Review [3], by the FIN-FSA found that sustainability disclosures under SFDR Articles 8 and 9 lacked clarity, consistency, and detail. With the Omnibus proposal and a planned revision of SFDR expected later this year, the regulatory landscape remains uncertain. It is currently unclear whether these amendments will eventually lead to clearer and better-quality reporting in the upcoming years.
What we can expect is that as the sustainability data may no longer be required from a wide enough set of companies, the responsibility for reliable sustainability reporting will further shift from companies to professional investors. Investors will increasingly need to demand relevant data directly from portfolio companies and turn to estimation methods, third-party providers, or direct engagement with portfolio companies to meet their own SFDR obligations, efforts that are often resource-intensive and come with higher risks of non-compliance and greenwashing. In other words, in the short term, this means that investors will need to upgrade internal systems, refine estimation tools, and increase outreach to portfolio companies. Over the long term, it could call for stronger ESG data strategies and the evolution of voluntary reporting frameworks for portfolio companies.
Looking ahead, professional investors have an increasing responsibility to seek out reliable sustainability data from potential target companies and integrate it into their decision-making process. Unlike retail investors, institutional players have the influence to challenge companies and drive meaningful progress. In this shifting landscape, the responsibility for a more sustainable future no longer rests with companies alone – it is increasingly shared by the investors who choose to support them.
[1,2] Finnish Government, Valtioneuvoston kirjelmä TEM/2025/38
[3] FIN-FSA, Thematic review 14 November 2024, Sustainability risks and sustainability-related disclosure obligations in investment fund activities
Maria Larkka
Senior Manager, Legal & Compliance, Advisense
Anna Häkkinen
Associate, Reporting & Risk Solutions, Advisense
