PwC’s Michael Horvath: As ESG hype cycle winds down, the real differentiator is substance

Sustainable finance and sustainability leader at PwC Luxembourg on European Commission’s Omnibus changes to the CSRD

Michael Horvath

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PA Future speaks to Michael Horvath, sustainable finance and sustainability leader at PwC Luxembourg, about the European Commission’s Omnibus changes to the Corporate Sustainable Reporting Directive (CSRD), and how the delays will provide short-term relief but those getting ready now will be the leaders of the future.

What are the proposed changes to CSRD? Which organisations does this impact?

The Commission’s Omnibus simplification package makes several proposed changes to the CSRD, all ostensibly aimed at easing the administrative burden on businesses.  

The biggest shift is that only companies with more than 1,000 employees, and either €50min turnover or €25min total assets, would remain in scope. That means around 80% of companies that were originally expected to report would now be excluded. This is a significant change that drastically reduces the number of companies directly in-scope.

But the changes go beyond the directive’s scope. If passed, ‘CSRD 2.0’ will mean the Commission would no longer have the power to issue sector-specific standards, and it plans to revise the ESRS to reduce the number of mandatory data points and clarify areas of confusion. There’s also a two-year delay for the second and third reporting waves, meaning that many companies that expected to report in 2026 or 2027 may now be exempt altogether. EU-listed SMEs, which were part of the third wave, would ultimately fall out of scope under this proposal. 

Lastly, the timeline for assurance is being softened. The initial move to limited assurance remains, but the transition to reasonable assurance is no longer foreseen.  

So, in short, we’re looking at fewer companies, fewer disclosures, and more time for preparation, alongside a narrower foundation for sustainability reporting across Europe. With ESG enthusiasm cooling off in parts of the market, this is the moment when frameworks such as CSRD need to prove their long-term value, rather than lose their footing and be diluted to mere compliance checklists. 

See also: Investors react as Omnibus confirms far-reaching changes to CSRD, CSDDD and Taxonomy

Is this more or less burdensome for companies?  

In the short term, the reporting burden under CSRD will be lighter. Fewer companies in scope, fewer mandatory disclosures, and more time to get ready. For many, this is a welcome pause, especially smaller firms whose ESG capabilities were still embryonic and who were struggling to carry out a double materiality assessment. But the big picture becomes more complex when you step back. 

Even for companies that are not in scope of the original CSRD or the proposed CSRD 2.0, sustainability information will, more likely than not, still be required in one way or another. When it comes to the latter, in-scope companies have the right to request sustainability information from companies in their value chain based on a minimum standard yet to be fully defined. This may still lead to quite a number of out-of-scope companies to voluntarily report against CSRD to limit bilateral information requests and make use of sustainability as a business differentiator. 

There is some relief on pure public reporting, but this will also will likely be short-lived. 

What has brought on the need for changes/improvements? Are we still seeing greenwashing?  

The changes are a response to legitimate concerns, particularly from SMEs, about the administrative pressure CSRD has placed on businesses and the limited guidance that was available to them. CSRD is clearly and deliberately ambitious, and for good reason, but the pace of implementation and scale of change triggered concerns from across sectors and industries – also considering the economic backdrop and challenges in Europe.

By seeking to simplify and harmonise, reducing scope, clarifying expectations, and prolonging timelines, the Omnibus Package should be viewed as part of the European Commission’s ‘Competitiveness Compass’ which seeks to simultaneously boost the competitiveness of the European economy while also doubling down on decarbonisation and simplifying regulatory burdens in Europe. 

As for greenwashing, in some cases it certainly might be about deliberate misrepresentation, often times we see that this – specifically in larger organisations – is about inconsistencies in responsibilities, messaging, data and unclear standards. That’s exactly what CSRD – particularly its technical standards (ESRS) – were designed to address: consistency and standards.

If anything, the early implementation phase has shown just how valuable consistent, comparable disclosures already are, not just for regulators, but for investors, clients, and the companies themselves. So, while improvements are welcome, they need to strengthen trust, not dilute it. And in many ways, the ESG hype cycle is winding down,the real differentiator becomes substance. 

See also: Two-thirds of companies ‘very confident’ about reporting in line with CSRD

You have suggested double materiality can be a strategic advantage – can you explain that?  

Double materiality is often treated as a compliance exercise, but when you actually get into it, it’s much more strategic than that. It forces companies to look at both sides of the coin, how sustainability risks could impact their financial performance, and how their own activities affect society and the environment. 

When companies go through that process properly – mapping value chains, engaging stakeholders, testing their assumptions – it can uncover exposures and dependencies they hadn’t previously quantified. These might include policy shifts in key markets, reputational and litigation risks, alongside stakeholder pressure building downstream. 

Beyond that, it also helps companies identify where they’re well positioned and where they can improve alignment with future market demand. By bringing ESG into the same conversations as finance and operations, double materiality gives decision-makers a clearer view of what’s vulnerable, what’s resilient, and where to focus capital or innovation. In a post-hype ESG landscape, that kind of clarity is exactly what sets serious firms apart. 

To fully capitalise on a good double materiality process, we need to go one step further – which is the most challenging one – we need to start quantifying what the main impacts may mean for revenue, capital expenditures and operating expenditures. This will elevate the sustainability results to forward looking decision-making inputs. 

In all of that, in our view one must be pragmatic and start top-down otherwise you will be lost in the weeds. 

What do businesses need to do to stay ahead of voluntary and mandatory disclosures?  

The leading companies aren’t waiting for perfect clarity. They’re getting ready now. Whether it’s CSRD, ISSB, or sector-specific frameworks, the direction is clear: more transparency, more scrutiny, and growing pressure for credible data. What sets leading firms apart isn’t who discloses the most, but who uses such disclosures to improve how decisions are made and how to better position the firm for the future. 

This means embedding ESG across the organisation, in finance, risk, procurement, product strategy, and not just within sustainability teams. It means building systems that connect sustainability and financial data so that reporting becomes integrated and reliable. And it means treating sustainability assurance as an opportunity to strengthen trust, not just a compliance exercise. The firms that take this seriously are building sustainability reporting as a core capability.