European businesses are reassessing their approach to sustainability amid shifting policy signals, rising compliance costs and increased geopolitical uncertainty. While the long-term imperative to decarbonise remains in place, 2025 has brought a more pragmatic tone to EU-level regulation.
One key example is the European Commission’s Omnibus Package, a legislative initiative aimed at simplifying burdensome rules for businesses. Among its proposed revisions is a significant amendment to the Corporate Sustainability Reporting Directive (CSRD), which had been set to expand non-financial disclosure requirements to companies with more than 250 employees. The commission now proposes raising that threshold to 1,000 employees.
Neil Willoughby, head of EU and International Affairs at Ibec, says the shift is not a rollback but a recalibration.
“The commission is not abandoning the CSRD. It’s trying to make it more proportionate,” he says. “Even if SMEs fall outside the official scope, they remain deeply implicated through their relationships with larger corporates.”
The CSRD was originally introduced to place sustainability reporting on a par with financial reporting, including third-party auditing requirements. But while large, listed companies and financial institutions have long been subject to such standards, extending them to mid-sized firms has raised significant resourcing concerns.
“Most companies in the 250–1,000 employee range don’t have dedicated sustainability officers,” says Willoughby. “They might not even have a CFO in the traditional sense. So, the burden of compliance often falls on stretched internal teams or requires expensive consultancy support.”
While the proposed threshold adjustment may ease immediate pressure on smaller firms, it doesn’t eliminate the need to engage with sustainability frameworks. Voluntary reporting standards already exist for small to medium enterprises (SMEs), and a new standard is in development for mid-sized firms that may now be excluded from the CSRD’s direct scope. However, Willoughby cautions against interpreting “voluntary” too literally.
“These frameworks set expectations for what information large corporates can request from their suppliers,” he says. “If your clients are in scope, you’ll need to provide ESG data to stay in their supply chains.”
As a result, even companies technically exempt from the directive will face ongoing demands to align with its objectives. The challenge is not just legal but operational.
Ibec has launched an academy to upskill executives on sustainability reporting, but Willoughby acknowledges a significant gap between regulatory ambition and on-the-ground capacity.
“There aren’t enough trained professionals or auditors with the experience to meet the demand,” he says. “The skills pipeline isn’t keeping pace.”
Compounding the issue is broader geopolitical turbulence. New US tariffs on goods including green technologies pose a direct threat to the Republic’s export-heavy economy.
“Ireland is one of the most exposed EU member states to US trade,” Willoughby says. “Tariffs and trade uncertainty force companies to reallocate resources to immediate survival rather than long-term ESG strategies.”
Despite this, the State remains committed to EU climate goals. Domestic policy now includes sector-specific carbon budgets, a move mirrored by the EU’s growing preference for targeted rather than blanket regulation.
“The commission is still pursuing ambitious decarbonisation targets,” says Willoughby. “But there’s a clear shift towards making implementation more realistic. The Omnibus Package is part of that effort to deliver clarity and feasibility.”
International regulatory misalignment also complicates compliance for multinational firms. The CSRD contains provisions requiring non-EU companies to comply if they operate within the union, unless their home country offers equivalent standards. While the UK has broadly aligned reporting frameworks, the US does not, raising concerns about the extraterritorial reach of EU law.
“For some US companies, this could mean CSRD compliance not just in Ireland or the EU, but across their global operations,” says Willoughby. “That’s a significant increase in reporting obligations.”
Still, he maintains that Europe’s leadership on climate remains critical. “The EU is doubling down, not backing off. But we need a regulatory model that businesses can actually work with. That’s the challenge now.”
As companies wait for final details of the revised CSRD, expected later this year, many are pausing their investments in ESG frameworks until the legal landscape stabilises.
“Sustainability hasn’t been deprioritised,” Willoughby says. “But it’s competing with other urgent demands, from tariffs to inflation to geopolitical risk. Right now, businesses need clarity, support and time.”
