Myths vs. realities: Regulation watch (EU/US/Global) — what the evidence actually supports

Only 42% of companies facing CSRD disclosure requirements in 2025 report feeling "fully confident" in their ability to comply—and for those reporting in 2026, that confidence drops to just 14%. This confidence gap, identified in PwC's 2024 survey, reveals a fundamental disconnect between regulatory ambition and implementation readiness. As the EU's Corporate Sustainability Reporting Directive (CSRD) expands to cover approximately 50,000 companies, the Carbon Border Adjustment Mechanism (CBAM) enters its definitive phase in January 2026, and global carbon pricing programs proliferate to 75 jurisdictions covering 24% of emissions, sustainability professionals face an increasingly complex regulatory landscape. Separating regulatory myth from operational reality has never been more critical.

Why It Matters

The stakes of regulatory misunderstanding extend far beyond compliance penalties. CSRD compliance costs range from €150,000 for non-listed companies to €1 million annually for large listed entities, according to European Commission estimates. CBAM certificate costs—tied to EU ETS prices averaging €80/tonne CO₂—will add significant expense to covered imports, with projected annual revenue of €14.7 billion.

For US-based companies, the misconception that EU regulations are "somebody else's problem" creates strategic vulnerability. The CSRD's scope explicitly includes non-EU companies generating €450 million or more in EU turnover—approximately 3,000 American firms. Similarly, CBAM applies to any importer of covered goods (iron, steel, cement, fertilizers, aluminum, electricity, hydrogen) regardless of corporate nationality.

Beyond immediate compliance, regulatory frameworks increasingly shape competitive dynamics. Companies treating sustainability regulation as a cost center miss the strategic opportunity: 78% of institutional investors now incorporate circular economy metrics into investment decisions, and regulatory-aligned companies demonstrate 23% higher profit margins within three years of implementation (Research and Metric, 2025).

Key Concepts

CSRD's Phased Implementation and Recent Changes

The CSRD's rollout follows a phased approach that the February 2025 Omnibus proposal significantly modified:

Wave	Company Type	Original Deadline	Revised Deadline
Wave 1	Large public-interest entities (>500 employees)	2025 (FY 2024)	Unchanged
Wave 2	Large companies (>250 employees)	2026 (FY 2025)	2028 (FY 2027)
Wave 3	Listed SMEs	2027 (FY 2026)	2029 (FY 2028)
Wave 4	Non-EU companies (>€450M EU turnover)	2028 (FY 2027)	2030 (FY 2029)

The Omnibus proposal raises the employee threshold from 250 to 1,000, potentially exempting approximately 80% of originally covered companies. However, this relief comes with caveats: supply chain pressure from Wave 1 reporters will cascade regardless of formal reporting requirements.

CBAM Transitional to Definitive Phase

CBAM's transitional phase (October 2023-December 2025) required quarterly emissions reporting without financial obligation. The definitive phase beginning January 2026 introduces fundamental changes:

Annual reporting replaces quarterly submissions
CBAM certificates must be purchased matching embedded emissions
Importers must obtain "Authorized CBAM Declarant" status by December 31, 2025
50-tonne annual de minimis threshold exempts approximately 90% of importers by transaction volume (though not by emissions impact)

The Commission's December 2025 review identified 156 million tonnes of covered imports during the transitional period, with iron and steel comprising 69%, fertilizers 15%, cement 11%, and aluminum 5%. Ukraine (14%) and Turkey (12%) lead as origin countries.

The Global Carbon Pricing Landscape

Carbon pricing mechanisms now operate across 75 jurisdictions, up from 57 in July 2019, covering 24% of global greenhouse gas emissions (World Bank, May 2024). This proliferation creates both opportunity and complexity:

Countries implementing domestic carbon pricing retain revenue domestically rather than paying CBAM charges to the EU
The UK's CBAM launches January 1, 2027, creating potential for aligned or conflicting requirements
California and Washington state carbon markets interact with federal and international frameworks in complex ways

What's Working

Regulatory Convergence Reduces Fragmentation

Despite jurisdictional complexity, key frameworks are converging. The International Sustainability Standards Board's (ISSB) S1 and S2 standards, adopted by multiple jurisdictions including the UK, provide a baseline that CSRD incorporates while adding European-specific requirements. The EU Taxonomy's technical screening criteria increasingly align with global green bond standards, reducing the compliance burden for multi-jurisdictional reporters.

Example: Nestlé's Integrated Reporting Approach Nestlé reports under TCFD, CDP, GRI, and CSRD-aligned frameworks simultaneously, leveraging shared data infrastructure. Their 2024 sustainability report demonstrated how integrated materiality assessment—covering both financial and impact materiality required by CSRD's double materiality approach—streamlines reporting across jurisdictions while ensuring comprehensive stakeholder disclosure.

Technology Investments Yield Compliance Returns

Companies investing in sustainability reporting technology demonstrate measurably higher compliance confidence. PwC's survey found that 36% of Wave 1 reporters deployed non-financial reporting technology, compared to just 15% of Wave 2 reporters—correlating directly with the confidence gap. Over 90% of companies across both waves plan technology investments, recognizing that manual processes cannot scale to CSRD's 1,000+ data points.

Example: Siemens' Digital Sustainability Platform Siemens developed an enterprise-wide sustainability data platform integrating environmental metrics across 125 countries of operation. The system enables automated data collection aligned with ESRS standards, reducing reporting effort by an estimated 40% compared to manual consolidation while improving data accuracy for third-party assurance requirements.

Early Movers Capture Competitive Advantage

Companies treating regulation as opportunity rather than burden demonstrate superior outcomes. Analysis by McKinsey (2024) found that companies achieving CSRD readiness 12+ months before required deadlines reported 15% lower compliance costs and 28% higher stakeholder confidence scores compared to last-minute preparers.

Example: Ørsted's Proactive Regulatory Alignment Ørsted anticipated CSRD requirements by integrating ESRS-compatible metrics into management systems three years before formal requirements. This preparation enabled them to position for EU Taxonomy-aligned green financing at preferential rates, generating estimated savings of €50 million annually on sustainable finance instruments.

What's Not Working

Double Materiality Assessment Remains Challenging

CSRD's requirement for double materiality assessment—evaluating both how sustainability issues affect the company financially AND how the company impacts environment and society—creates methodological challenges. Only 55% of Wave 1 reporters cited "data quality and consistency" as their top challenge (PwC, 2024). Many companies struggle to quantify non-financial impacts with the rigor required for third-party assurance.

Scope 3 Emissions Data Gaps Persist

Value chain emissions (Scope 3) account for 70-90% of total corporate emissions for most sectors, yet reporting remains hampered by data availability. Supplier engagement surveys frequently yield response rates below 30%, and industry average factors—while permitted—provide limited decision-relevant information. CBAM's requirement for actual emissions data (limited to 20% default values from Q3 2024) highlights the gap between regulatory expectation and data reality.

Regulatory Uncertainty Creates Investment Hesitation

The February 2025 Omnibus proposal, while simplifying requirements for some companies, introduced uncertainty that complicated investment decisions. Companies that invested heavily in CSRD preparation for 2026 deadlines now face two-year delays. Conversely, companies that delayed preparation may face accelerated timelines if final adoption differs from the proposal. This regulatory volatility undermines the planning certainty that capital-intensive sustainability investments require.

Key Players

Established Leaders (Compliance Technology & Advisory)

PwC: Leading CSRD advisory practice with 1,200+ dedicated sustainability professionals globally. Published benchmark compliance confidence surveys.
Deloitte: Comprehensive sustainability reporting and assurance services. Major EU Taxonomy alignment advisor.
SAP: Enterprise sustainability management software integrated with core ERP systems. Sustainability Control Tower solution deployed across 400+ enterprises.
Workiva: ESG reporting platform used by 4,500+ organizations for SEC, CSRD, and multi-framework compliance.

Emerging Startups

Sweep: Carbon accounting and CSRD reporting platform. Raised €100 million Series C (2024). Serves 200+ enterprise clients.
Persefoni: AI-powered carbon accounting platform. $100 million Series B. Integrates with major ERP systems.
Watershed: Enterprise climate platform serving 200+ companies including Stripe, Airbnb, and DoorDash.
Plan A: Berlin-based decarbonization platform. Strong CSRD and EU Taxonomy expertise.

Key Investors & Funders

Salesforce Ventures: Major sustainability tech investor. Backed Watershed, Pachama, and multiple climate disclosure platforms.
General Atlantic: Growth equity investor in sustainability infrastructure. Backed Rimini Street's ESG compliance practice.
Horizon 2020/Horizon Europe: EU funding for sustainability reporting technology innovation.

Action Checklist

Map all applicable regulatory requirements across operating jurisdictions (CSRD, CBAM, SEC, state-level)
Conduct double materiality assessment aligned with ESRS methodology
Establish data collection systems for Scope 3 emissions and CBAM embedded carbon
Engage third-party assurance provider for limited assurance readiness assessment
Develop supplier engagement program for value chain emissions data
Monitor Omnibus proposal progress and adjust implementation timelines accordingly

FAQ

Q: Will the CSRD Omnibus simplification eliminate reporting requirements for mid-sized companies? A: The Omnibus proposal raises the employee threshold from 250 to 1,000, potentially exempting many companies from direct reporting obligations. However, supply chain pressure will persist: large companies subject to CSRD must report on value chain impacts, creating de facto disclosure requirements for suppliers regardless of formal obligations. Companies anticipating future growth beyond thresholds should maintain CSRD readiness.

Q: How do US companies determine CBAM applicability? A: CBAM applies to importers—typically EU-based entities—not foreign exporters directly. However, US manufacturers exporting covered goods to the EU face indirect impacts: EU importers will factor CBAM costs into purchasing decisions, favoring lower-carbon suppliers. Companies should calculate product-level embedded emissions and communicate this data to EU customers proactively.

Q: What level of assurance does CSRD require, and when does it change? A: CSRD mandates limited assurance initially, with targeted transition to reasonable assurance by 2028 (subject to Commission assessment). Limited assurance involves inquiry and analytical procedures; reasonable assurance requires detailed testing comparable to financial audits. Companies should build data systems capable of supporting reasonable assurance from inception.

Q: How material must a sustainability issue be to require disclosure under CSRD? A: ESRS provides quantitative thresholds for some topics but relies primarily on qualitative assessment. Issues material from either perspective—financial impact on the company OR company impact on environment/society—require disclosure. When uncertain, document the assessment process thoroughly; regulators and auditors will evaluate methodology rigor as much as conclusions.

Sources

PwC. (2024). CSRD Readiness Survey: European Corporate Confidence Assessment.
European Commission. (2025). CBAM Transitional Phase Review Report. COM(2025) 783 final.
World Bank. (2024). State and Trends of Carbon Pricing 2024.
European Financial Reporting Advisory Group. (2024). ESRS Implementation Guidance.
McKinsey & Company. (2024). The Competitive Advantage of Early ESG Movers.
European Commission. (2025). Omnibus Simplification Proposal: CSRD, CSDDD, and EU Taxonomy Amendments.