EU Sustainability Omnibus Regulation | Part I

EU Sustainability Omnibus Regulation | Part I

On March 12, 2026, the Foreign Trade Administration at the Ministry of Economy, the Israel Export Institute, and the Arison Center for ESG at Reichman University hosted a webinar titled ״The EU Sustainability Omnibus״. The event analyzed recent European legislative updates, marking a structural shift from voluntary Corporate Social Responsibility (CSR) to a mandatory era of ESG risk management and legal compliance.

The discussion centered on the EU Sustainability Omnibus, a comprehensive initiative designed to streamline corporate reporting. By updating core directives (CSRD, CSDDD), the EU seeks to balance the ambitious goals of the European Green Deal with the practical need to maintain business competitiveness. This post is the first of a two-part series.

A View from Brussels: Sven Gentner (DG FISMA, European Commission)

Background: Why Comprehensive Sustainability Regulation?

Gentner addressed the fundamental need for a Sustainable Finance framework. The goal is to ensure capital from banks and investors is channeled toward environmental and social projects rather than short-term profits. To meet Green Deal targets - including a 55% reduction in greenhouse gas emissions by 2030 and climate neutrality by 2050 - the EU requires an estimated €600 billion in annual investment. This necessitates mobilizing private capital through transparency: reliable, comparable, and audited data that allows markets to price risks and opportunities accurately.

Transparency Infrastructure: CSRD and ESRS

The EU implemented this vision through the Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS). The core principle is "Full Double Materiality": companies must report not only on how sustainability risks affect them (financial materiality) but also on their own impact on the environment and society (impact materiality), covering everything from carbon emissions to governance.

The Omnibus Initiative: Reducing Burden and Adjusting to Reality

Launched in February 2025, the Omnibus initiative adapts 2022 regulations to current geopolitical and economic shifts. It focuses on three strategic goals:

1. Reduce burden: Cutting bureaucracy and compliance costs.

2. Stay true to objectives: Streamlining without retreating from Green Deal commitments.

3. Act fast: Providing regulatory certainty after years of transition.

Key Changes under the Omnibus:

1. Change of Scope: The reporting threshold rose to 1,000 employees and €450M in turnover, exempting 85% of previously covered companies.

2. Value Chain Cap: Limits the data large firms can demand from SME suppliers to prevent overwhelming smaller partners.

3. ESRS Updates: Reducing "data points" to make reporting more focused and effective.

4. CSDDD Reforms: The Due Diligence Directive now applies only to very large firms (5,000+ employees, €1.5B turnover), with implementation delayed to 2029 and the removal of the mandatory "climate transition plan".

Non-EU Companies: Impact on Foreign Firms

Foreign companies (including Israeli firms) fall under CSRD if their EU turnover exceeds €450M with a significant local presence. Notably, non-EU firms are only required to report on impact, as the information is intended for local stakeholders (customers, civil society) rather than investors.

Implementation Timeline

• Mid-2026: Omnibus and ESRS updates transposed into national laws.

• 2027: Publication of specific standards for Non-EU companies.

• 2028: The first fiscal year for which eligible non-EU companies must report.

The Duality: EU Rigor vs. US "Headwinds": Dr. Ruth Dagan (Arison ESG Center / Herzog Law Firm)

Dr. Dagan presented a complex global landscape where Israeli companies navigate conflicting regulatory trends.

EU Ambition vs. US Backlash

A sharp duality has emerged: while the EU pushes for a 90% emission reduction by 2040, the US is experiencing significant anti-ESG political backlash, including legal challenges against investors following ESG principles. This creates a "regulatory tension" for global companies.

The K-Shape Trend and Market Forces

Dagan noted a "K-Shape" pattern: while some regulations see a partial retreat (via the Omnibus), market leaders continue to deepen their decarbonization efforts. Even with federal resistance in the US, states like California and New York are advancing their own climate disclosure laws. Furthermore, market giants like Amazon and Microsoft continue to demand ESG data from suppliers regardless of regulation.

Extraterritorial Impact on Israeli Companies

Israeli firms face the "Brussels Effect" through:

1. Direct Application: Via CSRD thresholds.

2. Indirect Application: Via integration into European supply chains. Like REACH (chemicals) or carbon pricing, EU standards often become the "de facto" global voluntary standard.

Key Trends

1. Anti-Greenwashing: Enforcement is already active under consumer protection laws (e.g., Germany, Canada). Greenwashing now carries financial penalties, with ECB data showing higher interest rates for sued companies.

2. Sustainable Finance: Despite a slight rise in fossil fuel funding, sustainable finance continues to grow as major institutions signal long-term commitment.

Summary: The New Era of ESG

According to Osapiens, 86-90% of EU companies plan to maintain sustainability activities despite the Omnibus "softening." The legal obligation may have narrowed, but the business norm remains. For Israeli companies, ESG is evolving from a compliance burden into a critical competitive advantage.

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Shaked Namdar Tawil, Intern at the Arison Center for ESG Blog Team, and a Law and Government student at Reichman University.

Hagar Zuarets, Intern at the Arison Center for ESG Blog Team, and a Law and Business Administration student at Reichman University.