On February 26, 2026, the EU published Directive 2026/470 in its official journal and the corporate sustainability world split, instantly into two camps. On one side: relief. On the other: alarm. And in the middle, a much harder question that neither camp is fully answering; what does it actually mean to hold companies accountable for their environmental impact and has Europe just made that harder or easier to do?

To understand why that question matters, we have to go back to what CSRD was originally trying to do and why it was so radical in the first place.

What CSRD actually was? The idea behind it and why execution was always going to be hard

Corporate Sustainability Reporting Directive was adopted in November 2022 with a premise that sounds obvious but was in practice, revolutionary: treat sustainability reporting the same way the world treats financial reporting. Audited. Standardized. Publicly accessible. Legally required and not a voluntary appendix to an annual report and of course not a glossy sustainability brochure, but a document with the same legal weight as a set of accounts: one that an auditor would scrutinize and regulator could act on.

The concept at its center was double materiality and this is the part most summaries of CSRD skim past too quickly. Most corporate disclosure frameworks ask one question: how does the world affect our business? Climate risk, supply chain disruption, regulatory change. All of it filtered through the lens of shareholder value. Double materiality asks the second question too: how does our business affect the world? The emissions, the communities displaced, the water consumed, the biodiversity lost. In doing so, it reframes the corporation not as a passive victim of environmental risk but as an active participant in creating it. That philosophical shift from risk management to accountability is what made CSRD genuinely different from anything that came before it.

Originally nearly 50,000 companies were in scope. That number came down after the initial ESRS were adopted and then came down dramatically again with the Omnibus. Today mandatory CSRD applies to roughly 5000 companies: a reduction of approximately 85% from the original ambition. Wave 2 deadlines have been pushed from 2026 to 2028. Listed SMEs have been removed from scope entirely. The ESRS itself is being simplified and 68% fewer disclosure requirements expected in the revised version

The omnibus was framed by the European Commission as a competitiveness measure, a response to the legitimate concern that compliance costs were threatening European business in global markets. The total administrative burden of CSRD was estimated at 3.6 billion Euros annually.

For smaller companies in particular, the data infrastructure required was genuinely prohibitive. That is a real concern. But the question of whether reducing the number of companies required to report actually reduces the problem those reports were meant to address is a different question entirely.

The case for simplification is not made only by industry lobbyists, though they were certainly loud about it. It is also made by people who genuinely care about sustainability and believe that an overloaded, unworkable reporting framework serves nobody. Paul Druckman, former CEO of the International Integrated Reporting Council has argued for years that the volume of disclosure requirements in frameworks like CSRD risked burying the most material information under mountains of less relevant data. More disclosure is not always better disclosure. A 500-page CSRD report that no investor has the capacity to read cover to cover is not accountability rather a performance.

Philippe Diaz senior manager of sustainable finance at WWF Germany raised serious concerns when the simplified ESRS were published.

And that is a precise accusation that the simplification did not just reduce administrative burden but actively created space for companies to downplay their environmental impacts in ways the original framework would have prevented.

The investor community whose appetite for sustainability data is consistently underestimated by those who frame ESG as pure regulatory imposition, has expressed its own concerns. MSCI’s 2026 sustainability outlook noted that investors had taken for granted that sustainability disclosure data would be guaranteed by regulation and that assumption is now being tested. There is already evidence that companies reporting clearer sustainability data are being rewarded with a lower cost of capital and higher equity valuations. The markets in other words is pricing sustainability transparency as a financial asset and reducing the supply of that transparency is not neutral for investors

Whatever the regulatory picture, the business reality of 2026 is more demanding than the revised CSRD framework might suggest. The companies that fell out of mandatory scope are discovering something the omnibus debate did not fully anticipate: their buyers, investors and banks did not fall out of scope with them. Even with a reduction in CSRD’s scope, firms will likely face data requests from somewhere along their business chain. A supplier to a wave 1 company; one of the 5000 still mandatorily reporting will still be asked for emissions data, material composition records and supply chain transparency. The obligation travels upstream regardless of where the threshold sits.

CDP reported that around 45000 suppliers were requested to disclose through its supply chain program in 2025, a number driven not by regulation but by the commercial demands of the large buyers who need the data for their own compliance. That dynamic will only intensify. The omnibus gave smaller companies a regulatory reprieve. Their customers are not honoring it.

Meanwhile, the Empowering Consumers for the Green Transition Directive enters enforcement in September 2026: introducing legal prohibition on vague environmental claims that cannot be substantiated. So, a company newly exempt from CSRD reporting is simultaneously facing a new legal prohibition on making sustainability claims it cannot prove. The regulatory burden has not been removed. It has been redistributed.

Underneath the CSRD debate is a deeper argument about mechanism. Disclosure regulation assumes that transparency produces accountability, that if companies are required to publish their environmental data: markets, investors, consumers and regulators will use that data to reward good performance. The chain of causation is real but it is long and leaks at every link.

The companies doing serious work on green transition, the ones building circular business models, redesigning supply chains, measuring and reducing actual emissions: mostly do not need a reporting requirement to tell them what their impact is. They already know. And the question of whether requiring disclosure from fewer companies gets us closer to the decarbonization that planet actually needs is one that neither the relief camp nor the alarm camp has fully answered.