Three Speeds: The UK, EU, and US Are Pulling Sustainability Reporting in Opposite Directions

Executive Summary

In February 2026, the UK finalized its Sustainability Reporting Standards (UK SRS S1 and S2), aligned with the ISSB's global baseline. That same week, the EU published its Omnibus I directive, gutting CSRD by exempting roughly 80% of previously covered companies. And the US? Still moving backward on federal ESG disclosure. For companies operating across borders, this three-speed divergence creates real operational headaches and, for those paying attention, real strategic openings.

What actually happened in February

Three things happened in the last week of February 2026. They tell very different stories about where the world is heading on sustainability disclosure.

On February 26, the EU published its Omnibus I directive in the Official Journal. The directive raises CSRD and CSDDD thresholds so dramatically that roughly 80% of previously in-scope companies are now exempt. Wave 1 companies, the largest public-interest entities, can even get a two-year reprieve from reporting in FY 2025 and FY 2026, depending on how their member state transposes the rules. The EU didn't abandon sustainability reporting. But it took several clear steps back from the aggressive timeline it set in 2022.

Days earlier, on February 24, the UK government published its final UK SRS S1 and S2 standards, directly aligned with the ISSB's global baseline. The Financial Conduct Authority opened a consultation on making these mandatory for listed companies, with comments due by March 20, 2026. Where the EU is pulling back, the UK is pressing forward.

In the United States, federal ESG disclosure efforts remain frozen. The SEC's climate disclosure rule is still tied up. Companies are scrubbing "ESG" from their filings. Proxy advisors are under political pressure. The Morrison Foerster 2026 outlook describes a regulatory environment where companies face scrutiny for saying too much about sustainability, not too little.

Why the UK approach is different

The UK's path is worth watching because it took a fundamentally different approach than the EU did with CSRD.

CSRD tried to do everything at once. Double materiality (both financial and impact), detailed European Sustainability Reporting Standards covering dozens of topics, mandatory assurance, supply chain due diligence layered on top. The ambition was enormous. So was the compliance burden. The Omnibus I directive is, in many ways, an admission that the EU overreached.

The UK SRS sticks closer to the ISSB's original design. It focuses on investor-decision-useful information. Single materiality: what affects the company financially, rather than trying to capture its entire societal footprint. That's narrower, but it's also something companies can actually implement without drowning in consultancy fees.

The Technical Advisory Committee reviewed the standards and recommended only minor amendments from the ISSB originals. The governance structure, with a cross-regulator Policy and Implementation Committee spanning Treasury, the FCA, the Bank of England, and several government departments, suggests the UK is trying to get the plumbing right before turning on the water.

What the EU's retreat actually means

The Omnibus I directive has been described as "simplification." That's the polite version. What actually happened: European policymakers heard from business, loudly, that CSRD was too much, too fast, with too little guidance on how to actually comply.

The numbers tell the story. Under the original CSRD timeline, roughly 50,000 companies would have been subject to reporting requirements. After Omnibus, that drops to around 10,000. The ESG Today analysis of the final vote noted that member states approved the package with minimal opposition, a sign of how broad the consensus was that the original scope was unworkable.

The CSDDD changes matter just as much. Companies subject to the due diligence directive are no longer legally required to adopt climate transition plans under CSDDD, though they still need them under CSRD. That creates an odd split: the reporting requirement survives, but the action requirement behind it doesn't.

For companies that had already invested heavily in CSRD preparation, this is frustrating. For those who had been dragging their feet, it's a reprieve. For everyone, it's a signal that political will on sustainability regulation has limits, even in Europe.

The US: retreat or recalibration?

The American picture is the most complicated because it's not one story. It's fifty.

At the federal level, the direction is clear. SEC climate disclosure is effectively dead for now. The terms "ESG" and "DEI" are being systematically removed from corporate communications. Federal agencies are investigating what they frame as anti-competitive behavior by environmental NGOs. The FTC may start scrutinizing sustainability claims through traditional misrepresentation frameworks rather than anything ESG-specific.

But states are diverging. California's climate disclosure laws (SB 253 and SB 261) remain on the books, even if implementation timelines are contested. Other states are advancing their own requirements. Some are moving in the opposite direction, passing anti-ESG legislation targeting investment managers and state pension funds.

Morrison Foerster sums up the challenge for multinationals: "how to meet mandatory disclosure and due diligence obligations in one jurisdiction without triggering regulatory, litigation, or political risk in another."

What this means for companies operating across borders

If you're a mid-size or large company doing business in the UK, EU, and US, here's the practical reality in 2026:

• The UK may require ISSB-aligned disclosure for listed companies by 2027 or 2028. If you're listed on the London Stock Exchange or have significant UK operations, start preparing now. The consultation closes March 20.

• The EU has narrowed its scope, but if you're above the new thresholds (1,000+ employees and €450M+ in net turnover), you're still in. The reporting requirements themselves haven't gotten simpler, just the number of companies they apply to.

• In the US, the safest approach for many companies is to maintain internal sustainability data infrastructure without making aggressive public commitments that could draw attention from either direction.

The ISSB as common ground

Here's what gets lost in the jurisdictional noise: over 30 countries are now adopting or aligning with ISSB standards. The UK is the latest. Japan, Singapore, Australia, Brazil, Nigeria, and others are at various stages. Even within the EU, the CSRD's European Sustainability Reporting Standards were designed to be interoperable with the ISSB baseline.

For companies trying to build a reporting system that works globally, the ISSB baseline is probably the best foundation. It won't satisfy every jurisdiction's specific requirements, but it gives you a common data architecture you can layer local requirements on top of.

This is, quietly, the most important development in sustainability reporting right now. Not any single jurisdiction's rules, but the emergence of a shared grammar that makes it possible to report once and translate for local audiences rather than maintaining entirely separate reporting tracks.

What we'd recommend

At Council Fire, we work with companies making sense of exactly this kind of regulatory fragmentation. Here's what we're telling clients:

Build to the ISSB baseline. Even if your jurisdiction hasn't adopted it yet, the ISSB standards are becoming the global common denominator. Building your data infrastructure around IFRS S1 and S2 gives you the most flexibility.

Don't confuse political rhetoric with regulatory reality. The anti-ESG noise in the US is loud, but so are state-level disclosure requirements, customer expectations, and investor due diligence. Companies that quietly maintain strong sustainability data, without making it their brand identity, are best positioned.

Watch the UK consultation closely. If the FCA makes UK SRS mandatory for listed companies, it will create a compliance requirement that's cleaner and more achievable than CSRD but still rigorous. Companies with UK exposure should be reviewing the consultation documents now.

Use the EU's pause strategically. If you've been preparing for CSRD and now find yourself outside the new scope, don't abandon the work. The data you've built will be useful under the ISSB framework, and the EU may tighten requirements again in the future. Think of the Omnibus as a reprieve, not an exit.

Related resources

• The Global Sustainability Disclosure Landscape Just Fractured. Here's What Smart Companies Do Next. - Our earlier analysis of the disclosure fragmentation trend.

• Europe Just Removed 90% of Companies from Sustainability Reporting. What U.S. Businesses Should Take Away. - A deeper look at the EU Omnibus implications.

• Embedding ESG Into Your Core Business Strategy - How to build ESG into operations rather than treating it as a compliance exercise.

• Demystifying ESG: Frameworks, Regulations and Reporting - Our overview of the major reporting frameworks.

FAQ

What are the UK SRS S1 and S2 standards?

They are the UK's domestic versions of the ISSB's IFRS Sustainability Disclosure Standards. S1 covers general sustainability-related financial disclosures; S2 focuses on climate. They were finalized in February 2026 and are available for voluntary use, with mandatory adoption under FCA consultation.

How does the EU Omnibus I directive change CSRD?

It raises the thresholds so that roughly 80% of previously in-scope companies are now exempt. Member states can also grant Wave 1 companies a two-year reprieve from reporting. The reporting standards themselves remain largely intact; the scope is what changed.

Should US companies still prepare for sustainability reporting?

Yes. State-level laws like California's SB 253 and SB 261 remain in force even though federal requirements have stalled. Companies with international operations may also face UK or EU requirements. Maintaining internal sustainability data capabilities gives you flexibility regardless of which direction US regulation moves.

What is the ISSB baseline and why does it matter?

The ISSB (International Sustainability Standards Board) created IFRS S1 and S2 as a global baseline for sustainability disclosure. Over 30 countries are adopting or aligning with these standards. Building your reporting around the ISSB baseline lets you meet multiple jurisdictions' requirements from a single data infrastructure.

How should companies with operations in multiple jurisdictions approach this?

Build your sustainability data architecture around the ISSB baseline, then layer jurisdiction-specific requirements on top. This is more efficient than maintaining separate reporting tracks for the UK, EU, and US. Keep an eye on the UK FCA consultation (closing March 20, 2026) and the EU Omnibus transposition timeline (March 2027).