EU Omnibus 1 & 2 Explained: The Future of ESG Compliance & Corporate Due Diligence

The European Union (EU) has been a global leader in sustainability, ESG (Environmental, Social, and Governance) regulations, and corporate accountability. Over the past few years, regulations such as the Corporate Sustainability Reporting Directive (CSRD), the Sustainable Finance Disclosure Regulation (SFDR), and the Corporate Sustainability Due Diligence Directive (CSDDD) have reshaped corporate responsibilities. However, gaps and inconsistencies in compliance and reporting requirements still remain, leading the EU to introduce Omnibus 1 and Omnibus 2 as a legislative package to enhance corporate transparency, ESG disclosures, and due diligence obligations.

But what exactly do these proposals mean for businesses? How do they impact corporate ESG strategies, global supply chains, and financial markets? More importantly, how should businesses prepare for the upcoming changes?

This blog provides a comprehensive breakdown of the EU Omnibus 1 & 2 proposals, explaining their significance, key provisions, and their impact on corporations, investors, and global supply chains.

Why Was the EU Omnibus Proposal Introduced?

The EU has been a global frontrunner in sustainability regulations, with frameworks like the CSRD (Corporate Sustainability Reporting Directive), SFDR (Sustainable Finance Disclosure Regulation), and CSDDD (Corporate Sustainability Due Diligence Directive). However, gaps still exist, allowing inconsistencies in ESG reporting, greenwashing risks, and weak supply chain accountability.

That’s where Omnibus 1 & 2 come in. These proposals aim to:

• Strengthen sustainability reporting under CSRD and SFDR.
• Harmonize ESG disclosure standards with global frameworks like ISSB and TCFD.
• Ensure companies take responsibility for ESG risks in their supply chains.
• Prevent greenwashing by tightening regulations on ESG claims and sustainable finance.

By aligning with the EU Green Deal, Fit for 55, and Paris Agreement, the Omnibus proposal reinforces the EU’s commitment to a sustainable economy—one where transparency, accountability, and regulatory compliance go hand in hand.

Key Stakeholders & Their Roles

Omnibus 1 & 2 will impact multiple stakeholders, including:

1. European Commission & Regulatory Authorities

• The European Financial Reporting Advisory Group (EFRAG) and European Supervisory Authorities (ESAs) will oversee compliance and enforcement.
• National regulators will implement penalties for non-compliance and monitor corporate disclosures.

2. Corporations & SMEs

• Large public and private companies must enhance sustainability reporting and expand ESG due diligence requirements.
• Small and Medium Enterprises (SMEs) working with large EU companies must also comply with supply chain due diligence rules.

3. Investors & Financial Institutions

• Stricter rules for sustainable finance products under SFDR to ensure ESG fund credibility.
• Institutional investors must assess ESG risks more rigorously before funding companies.

4. Supply Chain Partners & Global Businesses

• Non-EU suppliers working with EU companies must comply with new sustainability standards.
• Companies with complex, international supply chains will face increased reporting and due diligence obligations.

Understanding the EU Omnibus Proposal

The Omnibus 1 & 2 proposals introduce key amendments to existing ESG regulations. Their objective is to close regulatory loopholes, strengthen enforcement, and improve corporate accountability.

Key Differences Between Omnibus 1 & Omnibus 2

Now, let’s dive deeper into the specifics of each proposal.

Omnibus 1: Strengthening Corporate ESG Transparency

At its core, Omnibus 1 builds on the Corporate Sustainability Reporting Directive (CSRD) to enhance ESG transparency and prevent misleading sustainability claims.

Key Updates in Omnibus 1:

• Stronger ESG Reporting Rules – Companies must provide more detailed and verifiable ESG disclosures under CSRD.
• Greenwashing Prevention – Regulators will impose tougher scrutiny on false or misleading sustainability claims.
• Alignment with International ESG Standards – Harmonization with ISSB, SEC Climate Disclosures, and TCFD frameworks.
• Increased Scope of SFDR Compliance – More stringent ESG investment disclosures to ensure transparency in sustainable finance.

Impact on Businesses:

• More Scrutiny on ESG Reports – Companies must ensure their disclosures are accurate, standardized, and verifiable to meet the new regulations.
• Higher ESG Data Collection Demands – Expect more extensive data requests from investors, regulators, and auditors.
• Investor Expectations Are Rising – Businesses will face increasing pressure from investors demanding credible ESG performance data to assess financial risks.

Omnibus 2: Strengthening ESG Due Diligence & Supply Chain Compliance

If Omnibus 1 focuses on transparency, Omnibus 2 shifts the spotlight to corporate responsibility—especially in supply chains. The proposal strengthens corporate due diligence obligations under the Corporate Sustainability Due Diligence Directive (CSDDD), ensuring companies assess ESG risks beyond their direct operations.

Key Updates in Omnibus 2:

• More Robust Corporate Sustainability Due Diligence (CSDDD) Rules – Companies must identify, mitigate, and report ESG risks across their supply chains.
• Tighter Supply Chain ESG Compliance Obligations – Businesses will be required to conduct risk assessments on suppliers to ensure compliance with sustainability regulations.
• Higher Penalties for Non-Compliance – Companies that fail to meet due diligence standards will face fines, reputational risks, and potential legal action.
• Better Harmonization Across EU ESG Regulations – Omnibus 2 aligns CSRD, SFDR, and CSDDD, creating a more coherent ESG regulatory framework.

Impact on Businesses:

• Larger Enterprises & SMEs in Scope – While initially targeted at large corporations, SMEs working with EU companies will face indirect compliance pressure.
• Stricter Supply Chain Oversight – Businesses must assess ESG risks in their supplier networks, ensuring human rights, environmental, and emissions due diligence.
• Financial & Reputational Consequences – Failure to comply could result in significant fines, loss of investor confidence, and supply chain disruptions.

How Will These Changes Impact Global Businesses?

Even if your company isn’t based in the EU, these regulations could still impact you if you:

• Do business with EU-based companies that must ensure supplier compliance.
• Are an investor or financial institution with EU market exposure.
• Operate in high-emission industries that face stricter ESG disclosure rules.

The EU is setting a precedent, and global regulatory bodies like the SEC, ISSB, and TCFD are taking notes. Omnibus 1 & 2 aren’t just European regulations—they signal a broader shift toward stricter ESG compliance worldwide.

Who Will Be Most Affected? Industry-Specific Impacts of Omnibus 1 & 2

The EU Omnibus proposals are not one-size-fits-all—they will impact industries differently, with some sectors facing stricter compliance obligations than others. Let’s take a closer look at who will be most affected and what businesses in these industries should do to prepare.

1. Financial Institutions & Investors

Why It Matters: The financial sector plays a crucial role in driving sustainable investments. Under Omnibus 1 & 2, banks, asset managers, and investment funds must ensure that ESG claims are credible, verifiable, and free from greenwashing.

• More Stringent Sustainable Investment Criteria – Investors must assess ESG risks with greater scrutiny.
• Enhanced ESG Risk Disclosures – Financial firms need to disclose climate-related and sustainability risks in their portfolios.
• Stronger Accountability for Green Investments – ESG-labeled funds must provide evidence-backed sustainability credentials.

2. High-Emissions Sectors (Manufacturing, Energy, Heavy Industry)

Why It Matters: Industries with significant carbon footprints will be under pressure to improve emissions reporting, supply chain oversight, and ESG risk assessments.

• Stricter Scope 3 Emissions Reporting – Businesses must track and disclose indirect emissions in their value chains.
• Increased Carbon Footprint Transparency – Companies must align with EU climate goals to maintain regulatory and investor confidence.
• Greater Scrutiny on ESG Data – Expect more external audits to ensure compliance with Omnibus and CSRD requirements.

3. Retail & Consumer Goods

Why It Matters: Consumers and regulators are cracking down on greenwashing and demanding more transparency in product sustainability claims.

• More Scrutiny on “Sustainable” Product Labels – Businesses must prove sustainability claims with clear, standardized ESG metrics.
• Stronger Due Diligence for Global Supply Chains – Retailers sourcing from non-EU suppliers must ensure compliance across their value chain.
• Consumer Protection Against Misleading Claims – Companies must align marketing claims with actual sustainability performance.

4. Technology & Digital Companies

Why It Matters: The tech sector may not be a traditional high-emissions industry, but it is deeply embedded in global supply chains—from raw material sourcing to data center emissions.

• Stronger ESG Transparency Expectations – Investors and regulators demand greater sustainability disclosures from tech firms.
• Supply Chain Impact on Mineral Sourcing, Carbon Emissions & Labor Rights – Companies will need due diligence processes to avoid ESG violations.
• Increased Focus on ESG Data Security & Verification – Omnibus regulations will push companies to adopt third-party auditing mechanisms for ESG data.

How Can Businesses Prepare for Omnibus 1 & 2?

With these changes on the horizon, companies cannot afford to take a wait-and-see approach. Here are some practical steps to stay ahead of the new ESG compliance landscape:

1. Develop a Robust ESG Compliance Strategy

• Conduct an ESG compliance gap assessment to identify areas for improvement.
• Align sustainability reporting with CSRD, SFDR, and CSDDD to meet new disclosure rules.
• Strengthen internal governance processes to prevent greenwashing risks.

2. Leverage Technology for ESG Reporting & Data Management

• Invest in automated ESG reporting platforms to track sustainability performance.
• Use third-party audits to ensure ESG data accuracy and compliance with Omnibus regulations.
• Implement AI-driven sustainability analytics to improve ESG risk assessments.

3. Strengthen Supply Chain Due Diligence

• Engage with suppliers to align their ESG practices with Omnibus 2 requirements.
• Establish supplier codes of conduct to ensure ESG compliance.
• Implement data-driven monitoring tools to track supply chain emissions and risks.

Omnibus 1 & 2 Implementation Timeline & What’s Next?

📅 Key Deadlines:

• 2025-2026 – EU businesses begin aligning disclosures with Omnibus 1 regulations.
• 2026-2027 – Omnibus 2 due diligence requirements come into effect for large enterprises.
• Beyond 2027 – Potential expansion of rules to SMEs and global supply chain partners.

Will There Be an Omnibus 3?
As the EU continues strengthening sustainability regulations, we may see further amendments (Omnibus 3) focusing on climate risk reporting, stricter ESG audits, and extended liability for supply chain ESG risks.

Conclusion: The Future of ESG Compliance is Here

Omnibus 1 & 2 mark a new era in corporate sustainability and ESG accountability. Companies that proactively adapt will gain a competitive advantage, while those who delay risk regulatory fines, reputational damage, and lost investor confidence.

The path forward is clear: Businesses must act now to strengthen their ESG strategies, supply chain oversight, and compliance mechanisms.

Is your company ready for the next phase of ESG compliance? Start preparing today to stay ahead of the regulatory curve.