The so-called Omnibus proposals by the European Commission—to delay and reduce sustainability reporting obligations (CSRD)—have caused considerable commotion and have been widely criticized. Yes, the Omnibus causes uncertainty. Yes, this process could have been handled differently. Yes, the waiting is annoying.
What bothers me less is the political vagueness of the proposals, and more that the Omnibus significantly slows down the momentum and pace of the transformation process that has already begun. A transformation that is unfolding in the interplay between the real economy and the financial sector and is set to accelerate: Environmental, Social, and Governance (ESG) factors are increasingly becoming risk factors that are decisive for lending or investment decisions—regardless of whether a company is affected by regulation (or currently by the Omnibus) or not.
ESG as a Risk Factor Remains in Financial Regulation
One reason for this is that capital providers—banks and investors—are subject to ESG-related regulations that go beyond the Omnibus. According to the German Federal Financial Supervisory Authority (BaFin)’s “MaRisk”, financial institutions must explicitly include ESG risks in their credit, market, liquidity, and operational risks, and integrate them into risk management, overall bank governance, and the internal capital adequacy process (ICAAP), which determines capital requirements. The European Central Bank’s climate stress tests, whose results feed into supervisory assessments (SREP), must also be mentioned.
Furthermore, the EU banking regulator EBA adopted guidelines for the management of ESG risks in January 2025. These state: “Institutions should consider a sufficiently broad range of environmental factors, including at a minimum climate-related factors, ecosystem degradation, and biodiversity loss,” and “for large institutions, the assessment of environmental risk factors should at least include the exposure of the business model and/or the counterparty’s supply chain to critical disruptions due to environmental factors.”
Lenders Are Becoming More Selective
Banks and investors will become more selective about which ESG risks they are willing to finance—and which they are not. This is driven not only by regulatory requirements but also by internal strategic priorities.
Whether a bank is willing to take on financing risk also depends on the supply chain—from the bank to its credit default insurer, and further to that insurer’s reinsurer. Climate and biodiversity risks are playing an increasingly important role. This goes so far that highly risky loans may become uninsurable, or only at high premiums, which directly impacts borrowing costs for the company.
Thus, potential risks—as well as opportunities—lie primarily in the borrower’s business model. Climate change and the ongoing loss of biodiversity are not just existential issues; they also have potential financial consequences. More than half of global GDP (USD 58 trillion) depends on nature and its ecosystem services.
Industry association officials, as well as conservative and liberal politicians, often pose false dilemmas: “What do we want—jobs or climate protection? Diversity or profitability? Human rights or low unit labor costs? We must choose.” These are misleading questions. Pitting profitability against ESG is irrelevant once ESG risks begin to threaten business models or destroy assets.
The outgoing German government showed last year in its letters to the European Commission—advocating for postponement and dilution of the CSRD—that it didn’t understand this. Remarkably, even a Green minister signed on.
Reportedly, members of the CDU/CSU parliamentary group have demanded in a working group that the CSRD, the taxonomy, and the 2024-adopted EU directive on supply chain due diligence (CSDDD) be completely abolished (Tagesspiegel Background reported). The level of ignorance here is staggering. If these demands were to become part of government policy, they would severely damage the competitiveness of companies that have already aligned with CSRD requirements.
Politics Must Understand ESG Risks in Business
Unlike many politicians, numerous companies have understood that ESG is not about “woke” ideology or the fears of green idealists—it’s about managing business-relevant ESG risks. Companies need to earn money to invest in transformation. But what if climate change and biodiversity loss threaten the very ability to make money? What if the economic foundations are jeopardized by risks that are now to be deprioritized?
Diluting the Green Deal regulations would encourage exactly that and be counterproductive. It could drive up companies’ financing costs. It’s baffling why the threat climate change and biodiversity loss pose to many companies’ economic foundations hasn’t reached Berlin and Brussels.
Strengthening corporate competitiveness means helping companies understand and measure the climate- and biodiversity-related risks they face, and where they could be economically impacted. That should be the mission of Germany and the EU if they truly aim to enhance the competitiveness of European companies.
Many Companies Are Already Committed
Banks and investors will increasingly expect companies to report reliably and quantitatively on both ecological crises. Capital providers need data. That’s precisely why companies should deal with their ESG risks and disclose them—whether or not they are legally obligated to do so.
On a day-to-day operational level, companies do care about the outcome of the Omnibus initiatives. Investment decisions hinge on this, and planning security is a valuable commodity. The next German government should therefore pass the CSRD implementation law as quickly as possible. Strategically, it is more important to understand and politically embrace the underlying reasons why ESG matters to the real and financial economy—independent of CSRD, Omnibus, or company size.
In my experience, many companies have long understood this and have seriously and proactively prepared not just for the CSRD and ESRS reporting standards, but also begun to thoroughly assess their business models for ESG risks. Oddly enough, few representatives of industry associations or self-proclaimed economic policymakers seem to have noticed. Weakening and delaying the EU regulations now would undermine the work of countless companies and make it significantly harder for banks and investors to identify their own ESG risks and meet their regulatory obligations.
This article originally appeared on the Tagesspiegel and is republished here with permission.
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