By Ben Leblique, Senior Policy Specialist, EU
While the EU’s intention in 2025 may have been to simplify the EU’s sustainable finance agenda, it also introduced new legal uncertainty, complexity and political tension.
Through the ’Omnibus I’ package, EU policy makers rolled back key elements of sustainability reporting and due diligence just as markets were beginning to absorb and implement the rules. What are the key implications for investors and what can they expect in 2026?
What the final Omnibus I deal means for investors
The most immediate impact for investors comes from the sharp reduction in the scope of the Corporate Sustainability Reporting Directive (CSRD). By removing around 90% of companies from mandatory reporting, the Omnibus significantly curtails the flow of standardised sustainability data across EU capital markets.
With roughly 4,700 companies remaining in scope, investors with large, listed portfolios will continue to benefit from structured sustainability disclosures. However, the impact will be felt more acutely in mid-cap fund strategies, private equity and other private asset exposures. In these segments, reduced CSRD and taxonomy reporting will translate directly into data gaps and weaker comparability of sustainability performance for investors.
Similarly, removing 70% of companies from the scope of the Corporate Sustainability Due Diligence Directive (CSDDD) confines mandatory human rights due diligence to the very largest companies operating in the EU. While the final text avoids limiting due diligence strictly to direct suppliers – an improvement on earlier proposals – the continued restrictions on gathering information across the wider value chain discourage proactive risk identification and mitigation. This approach diverges from international standards such as the UN Guiding Principles for Business and Human Rights (UNGP). Removing the EU-wide civil liability regime also risks fragmenting the application of CSDDD across member states and restricting access to justice for victims – ultimately increasing legal and reputational risks for investors.
Weaker expectations on corporate transition planning
The removal of the CSDDD requirement to adopt and put into effect climate transition plans represents a further setback. Although the CSRD continues to require disclosure of transition plans, companies are only obliged to report the information if they have one. In practice, this makes transition planning optional for some of the EU’s highest-emitting companies, weakening expectations around private-sector delivery of the EU’s climate objectives.
The changes are also likely to affect the quality and comparability of plans, particularly when it comes to implementation – already a significant gap in current practice. CDP data shows that, while 72% of companies report emissions reduction initiatives, only 11% disclose having any transition-aligned capital expenditure. As a result, investors managing climate risk will need to place greater emphasis on engagement to assess whether stated transition ambitions are supported by credible investment plans.
Higher costs for investors, but key pillars remain
Taken together, these changes shift both cost and risk back onto investors. Investment managers and asset owners will increasingly need to rely on third-party data providers, bespoke data collection and stewardship to fill the gaps left by regulation. And as the EU rolls back its sustainability rules, other markets moving ahead with their own requirements – like the UK – may benefit from growing investor demand for credible transition investment opportunities.
At the same time, important elements of the EU’s framework remain intact for now. Large firms will continue to report on material sustainability risks and impacts across environmental, social and governance issues. The European Financial Reporting Advisory Group’s (EFRAG) revision of the European Sustainability Reporting Standards (ESRS) illustrates how simplification can be effective when it is technically grounded, evidence-based and transparent. If adopted in its current form, the revised ESRS should also improve interoperability with the International Sustainability Standards Board (ISSB) standards – a priority for globally active investors and businesses. And even a weakened CSDDD still leaves the EU as the only jurisdiction worldwide with mandatory human rights due diligence obligations.
What next for the EU sustainable finance framework?
The EU’s economic transition continues to provide significant opportunities for long-term institutional investors. Recent trends clearly underline this. While renewable energy investment in the United States fell by 36% between the second half of 2024 and the first half of 2025, investment in Europe rose by 63% over the same period. Clean technology, energy security and reduced reliance on fossil fuels remain central to Europe’s economic resilience and global competitiveness.
EU sustainable finance instruments already support substantial transition investment. Between 2022 and 2024, companies reported €742 billion in capital expenditure aligned with the EU Taxonomy for sustainable activities. However, these investments are concentrated in relatively easy-to-abate sectors like utilities, and fall short of overall investment needs – estimated at roughly €800 billion annually, according to Mario Draghi’s report on European competitiveness. Scaling capital towards harder-to-abate sectors remains a central challenge.
In this context, the revision of the Sustainable Finance Disclosure Regulation (SFDR) represents a critical opportunity. A well-designed transition fund category – anchored in robust, forward-looking criteria such as credible transition plans, science-based targets and demonstrable capital expenditure that avoids carbon lock-in – could help scale transition-focused strategies. Actively managed transition funds remain marginal and account for just 5% – around €30 billion in assets under management – of environmentally labelled funds, according to ESMA. Done well, the revisions to SFDR would align investor demand with corporate incentives and help channel capital towards real-economy transition needs – supporting the objectives of the EU’s Savings and Investment Union.
The upcoming review of the Shareholders’ Rights Directive (SRD) offers a further opportunity to strengthen the EU framework for stewardship. System-wide sustainability risks are undiversifiable and cannot be mitigated through portfolio reallocation alone. Stewardship is therefore a crucial lever for investors seeking to support the transition to a sustainable economy. To better reflect market practice, the revised SRD should move beyond a narrow focus on shareholder rights and recognise that stewardship can be applied across investment strategies and asset classes.
Making the EU transition investable
Transparency, labelling and stewardship are essential foundations for efficient markets and capital allocation, but they are not sufficient on their own to drive economic transformation or protect portfolios from systemic climate risk. Investors need confidence that disclosure frameworks are stable, policy signals are predictable and sectoral transition pathways are supported by credible real-economy policies and incentives.
2026 can be the year the EU recommits to its transition agenda with clarity and ambition. After years of building and revising its sustainable finance rulebook, the priority must now shift from constant adjustment to credible, consistent implementation.
PRI disclaimer: The PRI blog aims to contribute to the debate around topical responsible investment issues. It should not be construed as advice, nor relied upon. The blog is written by PRI staff members and occasionally guest contributors. Blog authors write in their individual capacity – posts do not necessarily represent a PRI view. The inclusion of examples or case studies does not constitute an endorsement by PRI Association or PRI signatories.
