Regulations may shrink, but risks won’t: Why the EU Omnibus won’t change the need for double materiality
Updated: 14 hours ago
The European Commission is currently reassessing its sustainability reporting framework, considering regulatory adjustments under an "Omnibus" package that could impact the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD). This shift is driven by concerns over regulatory burdens, rising costs, and Europe's competitive position in the global economy, according to the Wall Street Journal.
Some businesses might be celebrating the proposed regulatory rollback—but at what cost? Scaling back CSRD might seem like a relief, but in reality, it could introduce more uncertainty, erode investor trust, and set companies up for future compliance shocks.
One of the most powerful strategy tools in this regard is the Double Materiality Assessment. Regardless of how regulations shift, double materiality will remain a critical driver of business resilience, risk management, and value creation.
The European Commission's proposed regulatory changes
As part of its review of the EU’s Green Deal, the European Commission is considering revisions to sustainability regulations, including CSRD and CSDDD, which require companies to disclose their environmental and social impacts. Key considerations include:
Regulatory burden concerns: Some industry groups argue that CSRD and CSDDD create excessive reporting obligations that increase compliance costs, particularly for SMEs
Competitiveness challenges: European businesses have raised concerns that stringent sustainability rules could put them at a disadvantage compared to U.S. and Chinese firms that face less demanding ESG requirements
Potential adjustments: The proposed "Omnibus" regulation may consolidate and simplify sustainability reporting requirements. However, reducing reporting obligations could risk weakening transparency and investor confidence.
Despite these proposed changes, companies should not view sustainability as merely a compliance exercise. Those who view sustainability as merely a tick-box exercise are missing the point. Those who leverage Double Materiality Assessments as a strategic tool—both to mitigate risk and identify new growth opportunities - will ultimately come out on top.
The strategic importance of Double Materiality Assessments
The CSRD framework introduced the concept of double materiality, which requires companies to report on both financial materiality (how sustainability factors impact business performance) and impact materiality (how business operations affect society and the environment). Learn more about double materiality assessments here.
Regulations may change, but the reality of ESG risks won’t. Double materiality isn’t just a compliance requirement—it’s a survival tool. Here’s why ignoring it is a risk no business can afford.
Investor expectations remain high:
Investors with 6.6 trillion euros in assets under management have urged the EU not to weaken its sustainability rules (Reuters).
EY’s 2024 Institutional Investor Survey showed that 88% of investors had increased their use of ESG information.
Even if regulations shift, investors will still demand robust ESG disclosures to assess risk and opportunity. Companies that fall behind risk losing access to capital.
Resilience against future regulations:
Regulatory frameworks are constantly evolving. Even if CSRD reporting is softened today, stricter ESG standards could return in the future—companies with proactive DMA strategies will be ahead of the curve.
The EU Taxonomy and SFDR (Sustainable Finance Disclosure Regulation) will continue pushing companies toward robust ESG data collection.
Operational & market advantages:
Companies that integrate ESG with strong financial performance achieve, on average, 2 percentage points higher annual total shareholder returns compared to those focusing only on financials—and 7 percentage points higher than the broader market. (McKinsey)
A double materiality assessment can help businesses uncover cost savings, efficiency improvements, and innovation opportunities in areas like supply chain resilience and energy efficiency.
Without double materiality insights, businesses may fail to capitalise on sustainability-driven product development and emerging green markets.
5 ways to leverage double materiality for value creation
Beyond compliance, a Double Materiality Assessment is a strategic business tool that enables companies to identify opportunities for innovation, risk reduction, and market differentiation.
Here are just five of the ways to use double materiality to drive business growth.
Identifying efficiency improvements:
Integrating sustainability into business operations can lead to substantial efficiency improvements and cost savings. One example is the route optimisation technology ORION, which saves UPS 10 million gallons of fuel annually while decreasing CO2e emissions - by 100,000 metric tons in 2020, the equivalent of removing over 20,000 passenger cars from the road.
Enhancing brand reputation and trust:
Sustainability promotes trust, and highly-trusted companies outperform others by up to 400% in terms of market value (Harvard Business Review). ‘Trust drives behaviour, and ultimately, business outcomes.’
Even if reporting obligations are reduced, greenwashing regulations are tightening (e.g., EU Green Claims Directive). Incomplete ESG disclosures can damage credibility and lead to regulatory penalties.
Attracting sustainable finance:
According to MSCI's 2023 report, approximately €7 trillion out of €12 trillion in European assets under management are invested in ESG funds or strategies with some sustainability-related focus. Financial institutions increasingly reward strong ESG performers with better loan terms and investor interest (Bain & Company).
Future-proofing supply chains:
Under CSRD, companies must report on Scope 3 emissions, requiring them to assess sustainability risks across their supply chains. But beyond the compliance requirement, a proactive Double Materiality Assessment helps businesses identify key ESG risks and opportunities early, allowing them to build a more resilient and transparent supply chain.
From IROs to ROI: Turning ESG insights into strategy
A Double Materiality Assessment provides the strongest foundation for a company’s ESG strategy and execution roadmap. By assessing impacts, risks, and opportunities (IROs) from both an inside-out and outside-in perspective, businesses gain a clear, data-driven path forward.
This holistic view allows companies to align sustainability efforts with their overarching business strategy, ensuring that ESG initiatives drive tangible value, competitive advantage, and long-term impact.
Regulations may shift, but sustainability risks remain
The EU Omnibus might change the rules, but it won’t change the risks. Climate risk, supply chain vulnerabilities, and investor scrutiny aren’t going away—and companies that deprioritise ESG today will find themselves scrambling to catch up tomorrow. This isn’t just about compliance—it’s about resilience, trust, and future-proofing your business.
Rather than waiting for regulatory changes, businesses should take control of their sustainability agenda through a proactive Double Materiality Assessment - a strategic tool that will help them drive efficiency, resilience, and market advantage.
We simplify double materiality
At Drova, we help companies streamline their Double Materiality Assessments, ensuring they are not only compliant but strategically positioned for success. Meet regulations, identify risks, and drive value effortlessly, while connecting the dots from sustainability to your overarching business strategy.
