UK employers reset ESG strategy as EU moves to cut reporting burdens

Employers are reassessing sustainability strategy after a European Commission consultation closed on draft revised reporting standards which would significantly reduce ESG disclosure requirements for many businesses. The proposals, published last month, are designed to simplify sustainability reporting, reduce compliance burdens, and support European competitiveness. With the consultation period now complete and the Commission expected to move towards finalising the new standards, we’ll speak to a sustainability expert about what this means for employers and multinational organisations.

For HR teams, the issue goes well beyond corporate reporting. Sustainability obligations increasingly overlap with workforce issues including labour standards, supply chain due diligence, training, governance, and corporate culture. But while parts of the regulatory burden may now be easing, the wider legal, commercial, and reputational risks linked to sustainability remain significant.

What is becoming clearer is that many organisations are now reassessing sustainability through a broader business and risk management lens rather than treating ESG simply as a compliance exercise. The Commission’s latest proposals are one of the clearest indications yet that Europe is trying to strike a different balance between sustainability ambition and competitiveness.

The draft standards would significantly simplify sustainability reporting requirements and reduce the burden on many companies that remain within scope. At the same time, the wider Omnibus reforms are expected to reduce the number of businesses subject to mandatory sustainability reporting. With the consultation now closed, businesses have their clearest picture yet of the direction of travel and are assessing what the proposed changes could mean for future reporting and compliance strategies.

But that does not mean sustainability risk disappears. Investors, customers, regulators, and employees continue to scrutinise how businesses manage environmental and social issues, particularly within supply chains. For multinational employers, the challenge is also becoming more complex as jurisdictions move in different directions. While Europe is simplifying parts of its sustainability framework, other countries continue to take different approaches, creating a more fragmented global compliance landscape.

As a result, many employers are moving towards a more proportionate approach to sustainability, focusing less on reporting for its own sake and more on how sustainability risk affects business resilience, reputation, and long-term value.

So let’s get a view on this. Earlier I caught up with climate and sustainability expert James Hay who joined me by video link to discuss it:

James Hay: “So I think one really important thing to address is the fact that this ESG backlash is a realisation of competitiveness and the potential trade off with sustainability in many governments around the world. Many lay the blame for this backlash at the feet of the new Trump administration but, in reality, the EU was thinking about sustainability and business well before the last election. The European Commission President commissioned a competitive report from Mario Draghi, who is an ex-Prime Minister of Italy and ex-President of the European Central Bank and, essentially, he found that European businesses were really burdened in a number of different areas but one that's relevant to my area is, of course, in relation to sustainability regulation. So this is not just about the new US administration, it’s something really about the EU and the UK recognising that there is a trade-off between sustainability and business.”

Joe Glavina: “What has the UK’s response been to this, James?”

James Hay: “The UK is a little bit further behind, for example, the EU, in relation to sustainability and regulations. So although there hasn't been as much of a pullback on sustainability, this is because some of those regulations haven't in fact come into effect yet. So this has given the UK an opportunity, essentially, to learn from the EU, to identify mistakes, and to implement a more proportionate response. However, as the UK is implementing some of these regulations, what we're identifying is that there's been a bit of a slow roll by the new Labour government in relation to some of its sustainability commitments in the Manifesto, and this is really because they're currently focusing on their growth agenda.”

Joe Glavina: “How different is the regulatory picture internationally? What does this mean for multinational employers?”

James Hay: “There's a bit of a regulatory divergence around the world. Obviously, the EU led the way, and then the UK is following up behind, and the US is definitely pausing a lot of sustainability initiatives, although that will be at the federal level. Certainly at the state level, there's still governments that are pushing forward with their sustainability agenda. This creates, clearly, a challenging business environment for multinationals who are having to comply with very different regulations in different jurisdictions. I suppose one pragmatic approach to that could be looking for essentially the highest common denominator, looking for a framework, or a sustainability strategy, that would comply broadly across different regimes, and then to identify where uplifts are required under more tightly regulated environments, such as in Europe.”

Joe Glavina: “So what’s the practical takeaway from all of this, James.”

James Hay: “One of my key messages here is that you can't just pause all of your sustainability initiatives. Yes, there is a simplification when it comes to sustainability regulations in relation to some of the reporting that you're doing, or in relation to some of the due diligence that you're carrying out when looking at your suppliers. However, sustainability isn't just about reporting due diligence. There are a lot of laws and regulations that relate to employees and how businesses function that have been around for decades. We call them sustainability now, but things like health and safety laws are issues that companies have been dealing with for a long time. So even though there's a pullback in some of these more modern regulations, that underlying foundation of good employment practices remains.”

So the key takeaway for HR is that while Europe may be moving towards a more proportionate approach to ESG reporting, sustainability risk itself is not going away. Employers are still facing growing scrutiny around workforce standards, supply chains, governance, and corporate culture, particularly across international operations. If you would like help understanding the practical implications of these changes for your organisation then please do contact James – his details are on the screen for you.