EU Omnibus and Climate Risk: What Is Changing and Why Engaging Now Remains a Strategic Advantage
On April 3, 2025, the European Parliament approved the “Stop-the-Clock” proposal, a key element of the European Commission’s Omnibus Simplification Package. Once formally adopted by the Council and published in the Official Journal of the European Union, the directive will enter into force, and Member States will be required to transpose it into national law by the end of 2025.
The decision represents a significant adjustment in the timeline and scope of EU sustainability reporting obligations. While some aspects are now moving forward, others – such as broader revisions to reporting content – remain under negotiation. For companies assessing physical climate risks, this regulatory update introduces both short-term relief and long-term strategic considerations.
What Has Been Approved: The “Stop-the-Clock” Decision
The approved regulation includes:
- Postponement of CSRD Deadlines:
- Companies in Group 2 (large non-listed companies with 250+ employees, €40M+ turnover or €20M+ assets) will now report in 2027 (for FY 2026), not 2026.
- Listed SMEs will report in 2028 (for FY 2027), with the option to opt out until 2029.
- Staggered Application of ESRS:
- Companies may apply only the sector-agnostic European Sustainability Reporting Standards (ESRS) developed by EFRAG during the initial implementation phase.
- Sector-specific ESRS and reporting standards for non-EU parent companies have been delayed until at least mid-2026.
- Simplification Process Initiated:
- The European Commission has launched a formal review of the ESRS framework to reduce the reporting burden and focus on “most material” disclosures.
What Is Still Pending
Several aspects of the Omnibus package and related sustainability legislation remain under negotiation or development, including:
- Changes to the CSRD’s underlying scope and content beyond timeline postponements (e.g., reduced disclosure requirements, revised data points).
- Finalization of the Corporate Sustainability Due Diligence Directive (CSDDD) and its coordination with CSRD obligations.
- Technical standards for reporting by third-country (non-EU) parent undertakings with significant EU operations.
- Development of a “lighter” ESRS framework for SMEs, expected by 2026.
Implications for Physical Climate Risk Assessments
While the delay in reporting requirements may suggest a temporary deprioritization, the strategic rationale for conducting physical climate risk assessments remains unchanged, and arguably stronger. Here’s why:
- Physical Climate Risk Is Not Waiting for Policy Timelines
Heatwaves, floods, wildfires, and other extreme weather events are intensifying across Europe. These hazards directly affect:
- Operational continuity
- Supply chain stability
- Asset insurability and financing
- Workforce health and safety
Regardless of reporting requirements, understanding and preparing for these impacts is critical for risk management.
- EU Taxonomy Requirements Still Apply
While the “Stop-the-Clock” proposal affects timelines for CSRD and ESRS obligations, it does not impact the application of the EU Taxonomy Regulation, which remains fully in force. Companies subject to the Taxonomy must continue to assess and disclose their alignment with the environmental objectives defined in the regulation, including climate change mitigation and climate change adaptation.
For these objectives, the Taxonomy requires companies to conduct climate risk and vulnerability assessments at the activity level. These assessments are essential to determine whether an activity substantially contributes to adaptation or mitigation and whether it meets the “Do No Significant Harm” criteria.
As such, companies aiming to maintain or demonstrate Taxonomy-aligned investments or activities must continue to develop and apply robust physical climate risk methodologies, regardless of delays in other regulatory frameworks.
- Investor and Lender Expectations Remain High
Capital markets continue to expect transparency on climate risk. Many institutional investors and banks, especially those aligned with the Task Force on Climate-related Financial Disclosures (TCFD) or ISSB standards, seek detailed insights on both transition and physical risks.
Even for companies now outside CSRD’s mandatory scope, disclosure pressure from capital providers remains unchanged.
- Value Chain Pressures Persist
Many companies exempt from direct reporting may still face indirect reporting demands from customers, especially large corporates and multinationals that must meet CSRD or other global standards.
Being prepared on climate risk enhances a company’s credibility, reliability, and competitiveness in commercial relationships.
- Delays Provide Time for Better Preparation
The postponed timelines offer a strategic window to:
- Build capacity for climate scenario analysis
- Improve data collection on physical asset exposure
- Pilot or refine risk models
- Integrate findings into enterprise risk management and strategic planning
This is an opportunity to prepare thoroughly and proactively, rather than delay action.
Conclusion
While the EU’s “Stop-the-Clock” decision delays some climate reporting obligations, it does not eliminate the strategic importance of physical climate risk preparedness. Stakeholders – from regulators to investors – still expect clarity on climate exposure and resilience. Moreover, EU Taxonomy compliance continues to require rigorous physical climate risk assessments, reinforcing their role as a critical part of corporate sustainability and financial disclosure.
Companies that act now – rather than wait – will be better positioned to comply, stay competitive, adapt to a climate-disrupted future, and reduce long-term costs.
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