In a surprising reversal, the European Union—long celebrated as the global leader in corporate sustainability standards—has taken a controversial step backward. On the last 26th, the EU unveiled its “Simplification Omnibus” proposal, a plan that would significantly dilute sustainability reporting requirements.

This unexpected pivot from the bloc that pioneered transparency in environmental and social impacts has sent ripples through the sustainability community and raised questions about the future of corporate accountability not only in Europe but the whole world.

This is a global issue, and all sectors should be aware of its impacts—including fashion. So, let's break down what’s changing and what it means for businesses, supply chains, and sustainability efforts.

Key Changes in the Proposal: What’s Shifting and Why It Matters

1️⃣ Corporate Sustainability Reporting Directive (CSRD)

The proposal increases the reporting threshold to companies with 1,000 or more employees, which is a notable increase from the earlier standard.

As a result, numerous companies, including those that significantly affect the environment, will be exempt from reporting their social and environmental impacts.

Furthermore, small and medium enterprises (SMEs) will now have the option to decline sharing data with larger firms.

This diminishes transparency within supply chains, complicating the ability of brands and investors to evaluate the actual sustainability effects of their activities.

2️⃣ Corporate Sustainability Due Diligence Directive (CSDDD)

This directive was already softened during legislative discussions, and the revised proposal diminishes it even more.

The most significant drawback? Due diligence now applies only to direct suppliers, leaving out the rest of the supply chain. Consequently, brands may no longer be held accountable for issues further down their supply chains, raising the likelihood of concealed environmental and labor violations.

3️⃣ The EU Taxonomy Regulation

The EU Taxonomy, which acts as the standard for identifying sustainable economic activities, has not seen significant changes in this proposal. However, the potential weakening of corporate reporting and due diligence requirements could diminish its effectiveness. If companies are not required to disclose essential sustainability information, the Taxonomy may lose its credibility as a resource for responsible investment.

What These Rollbacks Mean for Fashion Brands and Suppliers

The loosening of corporate sustainability regulations can always create widespread consequences throughout the fashion industry, affecting both brands and suppliers.

→ For Fashion Brands

With fewer companies obligated to report on sustainability, brands may encounter difficulties in tracking and verifying responsible sourcing. This could result in:

• Diminished supply chain visibility: Without mandatory data from suppliers, brands may find it challenging to evaluate the actual environmental and social impacts of their materials.

• Increased risk of greenwashing: With fewer disclosure requirements, brands that do not prioritize sustainability may feel less compelled to substantiate their claims with concrete data.

• Skepticism from investors and consumers: Those who are conscious of sustainability still expect transparency. Brands that downplay their ESG efforts risk losing trust and relevance in the market.

→ For Suppliers

Suppliers, particularly those providing sustainable materials, are likely to face new obstacles as well:

• Decreased demand for sustainable materials: If brands no longer feel the need to adhere to strict ESG standards, they may prioritize sourcing non-sustainable fabrics.

• Reduced pressure to supply ESG data: While this may lessen administrative burdens, it could also limit opportunities for sustainable suppliers to stand out.

• Increased pricing competition: If sustainability becomes less of a priority, price may take precedence in supplier selection, making it more difficult for ethical and environmentally responsible suppliers to compete.

Is Sustainability Losing Its Ground?

Experts and industry leaders have noted that sustainability appears to be gaining less attention in the fashion industry and other fields in recent months or even years.

The discussion revolves around how, despite the increasing impact of climate change, governments and corporation will not prioritized sustainability, causing it to fall lower on the industry's agenda (as highlighted in one of our Instagram posts).

This is exactly what the ninth annual "State of Fashion" report from McKinsey & Company and BoF indicated: 2025 marked the beginning of a long-anticipated slowdown in the fashion industry, including efforts towards sustainability.

The report revealed a decline in concern for sustainability among executives in fashion, dropping from 29% to 18%, which indicates its diminishing importance for the sector's growth.

Compounding this shift, newly elected governments in key markets like the U.S. have relocated their focus away from environmental regulations towards trade and taxation policies.

Since President Trump's return to office in January 2025, his administration has implemented numerous climate policy reversals, including withdrawing from the 2015 Paris Climate Agreement and promoting U.S. oil, gas, and coal production by opening protected areas for drilling.

Economic challenges, including inflation and increasingly unpredictable trade policies are drawing focus from the long-term threat of climate change. And a backlash against “woke capitalism” led by the US is exerting greater influence over politics. - BoF

The trends in the US seem to significantly impact global views on sustainability and ESG, as reflected in the recent changes in the EU.

Not by chance, some analysts have pointed out that the American Chamber of Commerce (AmCham) has publicly criticized the EU's ESG regulations, claiming they create excessive compliance requirements. These changes suggest a wider shift in the global approach to sustainability.

Even with the recent changes in the Omnibus Package, American business groups continue to push for further simplification of these rules. As a result, it is expected to have difficult moments for sustainability world-wide in the near future, and that won’t be different in the fashion industry.

Moving Forward: Next Steps and the Sustainability Community’s Response

The omnibus proposal must go through a complicated approval process that involves negotiations among the European Commission, Parliament, and member states before it can be put into effect.

Although the Commission is pushing for quick approval, there are considerable obstacles to overcome. Achieving agreement among the institutions is becoming more difficult due to rising opposition from both EU governing bodies and outside parties, such as civil society organizations and investment groups.

The sustainable finance community has strongly opposed the proposed changes, with industry experts arguing that the revisions are fundamentally misguided.

Jurei Yada, Director of Strategic Member State Engagement at E3G (Third Generation Environmentalism) emphasized that "rolling back regulations undermines the very thing the EU should be most confident in—its ability to influence global standards through the single market," reflecting widespread concerns in the sector.

In addition, critics have noted a significant inconsistency between this proposal and a recent report by Mario Draghi, the former President of the European Central Bank.

Draghi's detailed plan for enhancing Europe's sustainable growth and competitiveness calls for increased investment and better access to capital markets—elements that are notably lacking in the omnibus package.

While Draghi advocates for stronger enforcement of EU regulations by national authorities, market standardization, and digital reporting systems, he also insists on maintaining strong sustainability disclosure requirements to bolster investor confidence.

This disconnect has become a key point of criticism within sustainability discussions.

Navigating Change with a Strategic Business Approach

Although sustainability has been a significant focus for the industry in recent years, the recent regulatory updates indicate a change in priorities, regardless of whether businesses are on board.

In this new context, companies must adapt strategically to survive, ensuring they comply with regulations and operate efficiently while still incorporating sustainability where it is beneficial for their business.

Brands and suppliers that approach this transition thoughtfully—finding the right balance between compliance, cost-effectiveness, and sustainability—will be more likely to achieve lasting success. Here are the key areas to concentrate on:

1. Emphasize Compliance and Risk Management

Regulatory ambiguity can lead to risk exposure, particularly for companies operating in various markets. As EU sustainability reporting requirements become less strict, businesses should concentrate on what is still required while being aware of potential legislative changes. Failing to comply can result in reputational harm, diminished investor trust, and legal issues.

• Stay informed about changing regulations to prevent misalignment.

• Keep track of internal ESG metrics to prepare for future regulatory changes.

• Enhance relationships with direct suppliers for due diligence.

2. Focusing on Efficiency and Cost Management

As economic uncertainty increases, achieving cost efficiency is crucial. The reduction of ESG reporting may lessen administrative tasks, but it also requires brands and suppliers to reassess how they balance sustainability with financial health.

• Improve supply chain logistics to cut costs and boost profit margins.

• Simplify sourcing processes, aligning sustainable approaches to your financial goals.

• Invest in technology that improves supply chain transparency without incurring high compliance costs.

3. Foster Resilience for Future Changes

Political and economic conditions usually shift rapidly, so sustainability regulations may become stricter again. That’s why brands and suppliers should keep sustainability in mind, as it remains a key factor in long-term business resilience.

Additionally, clear, data-backed sustainability commitments is still an important element for strengthening brand credibility and attract value-driven consumers.

• Maintain fundamental ESG frameworks.

• Keep sustainability initiatives adaptable—modify them rather than discard them.

• Monitor investor and consumer opinions, adjusting strategies as needed.

This highlights a crucial necessity: to digitize the textile sourcing ecosystem using smart platforms that not only enhance operations and lower expenses but also integrate compliance, sustainability, and efficiency into a cohesive process that fosters business growth and promotes responsible production.

This is what we’re aiming at with World Collective Solutions.

We view technology as more than just a tool, but as a key driver for developing an industry that is more interconnected, efficient, and environmentally friendly.

Through platforms like our global sustainable Textile Marketplace, which connects fashion brands with approved eco-friendly suppliers, and our tailored regulatory guidance sessions with sustainability experts, we are promoting innovation across the fashion sector.

The fashion industry's reliance on traditional practices is not only hindering progress but also jeopardizing our collective efforts to tackle climate issues.

For more insights into the necessary transformation in B2B fashion, continue to explore our solutions here.

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Written By Maria Eugênia Lima, Content & Marketing Intern at World Collective