EU Sustainability Omnibus Regulation | Part 2

Following last week’s post, this second and concluding part of the series summarizes additional key insights from the webinar “The EU Sustainability Omnibus” (March 12, 2026), a joint initiative of Israel’s Foreign Trade Administration, the Export Institute, and the Arison ESG Center at Reichman University. While Part I mapped the evolving EU regulatory landscape and the balance between strict frameworks like the CSRD and the flexibility introduced by the Omnibus package, Part II shifts the focus to the personal legal exposure of Israeli directors and officers.

Professor Roy Shapira highlights a critical transformation: EU ESG regulation is no longer merely a corporate reporting framework but a driver reshaping fiduciary duties under Israeli corporate law. Through doctrines such as the duty of oversight, sustainability risks are becoming embedded within directors’ legal responsibilities, effectively turning ESG from a voluntary consideration into a core compliance risk.

Even where Israeli companies fall outside the formal scope of directives like the CSDDD, the indirect impact is substantial. Firms integrated into European value chains, particularly B2B suppliers, are likely to face increasing compliance demands from their EU counterparts, including detailed due diligence questionnaires. As a result, ESG expectations become a de facto market requirement, influencing access to contracts, financing, and competitive positioning.

A central challenge lies in enforcement. Because EU sustainability directives emphasize processes rather than strict outcomes, their effectiveness depends heavily on credible enforcement mechanisms. Without this, there is a risk of superficial compliance. However, Professor Shapira stresses that under Israeli law, directors may still face liability for failures of oversight, even in the absence of explicit EU sanctions, particularly where they fail to establish monitoring systems or respond to warning signs.

Drawing on the Caremark doctrine, increasingly referenced in Israeli jurisprudence, directors are expected to implement effective reporting systems and actively address compliance risks, including those related to ESG. Courts may assess liability not only based on what directors knew, but on what they should have known. The absence of ESG-related discussions at the board level could itself serve as evidence of a breach of duty.

This evolving legal landscape is already driving organizational change. Responsibility for ESG is shifting from CSR functions to compliance departments, ensuring closer integration with senior management and board oversight. Ultimately, the message is clear: despite targeted regulatory easing, ESG is not weakening but maturing into a binding framework shaped jointly by regulation, market forces, and expanding legal accountability. For Israeli companies, ESG has become a strategic, legal, and operational imperative in engaging with global markets.

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