The adoption of Omnibus I (Directive (EU) 2026/470) has materially reshaped the ESG due diligence landscape for M&A transactions in the European Union, narrowing the scope of the Corporate Sustainability Reporting Directive and deferring key obligations under the Corporate Sustainability Due Diligence Directive. Buyers and sellers must now re-examine how ESG representations, warranties and indemnities are drafted in share purchase agreements, and how residual regulatory risk is allocated between parties. Transactions that were structured under pre-Omnibus assumptions may carry hidden exposure that only becomes visible when the revised framework is applied to specific deal facts.
The Pre-Omnibus Baseline and What Changed
Before Omnibus I, practitioners structuring cross-border M&A in the EU operated against a rapidly tightening ESG regulatory backdrop. The Corporate Sustainability Reporting Directive (CSRD) was expanding its scope in waves, while the Corporate Sustainability Due Diligence Directive (CSDDD) was introducing supply-chain liability with civil-law teeth. SPA drafting had already begun to evolve: ESG warranties were lengthening, bespoke environmental and human-rights indemnities were appearing, and W&I insurance underwriters were seeking detailed ESG disclosure schedules before offering cover.
Directive (EU) 2026/470 – commonly referred to as Omnibus I – restructured both regimes. The CSRD's scope was reduced, removing a significant cohort of mid-sized companies from mandatory sustainability reporting obligations. In parallel, CSDDD obligations were deferred, pushing back the timeline within which value-chain due diligence requirements would bite on in-scope undertakings. The European Commission framed these adjustments as proportionality and competitiveness measures, but for M&A practitioners the immediate effect was a period of heightened uncertainty: prior assumptions embedded in signed or near-signed deals may no longer reflect the actual regulatory position of the target.
Interpreting exactly which entities remain in scope, and from which dates, requires close reading of Omnibus I against EUR-Lex consolidated versions of both directives. ESMA and EBA have issued or are expected to issue guidance touching on how financial-sector entities should treat sustainability disclosures in their own diligence frameworks, but as of the time of writing several implementation details remain subject to national transposition and are not yet settled across all Member States.
Re-Scoping ESG Due Diligence in the Post-Omnibus Environment
The first practical task for deal teams is to audit the scope of the target's ESG obligations under the revised framework. Three questions are fundamental:
- Is the target still a CSRD reporting entity? Omnibus I removed a number of previously in-scope companies. A target that was represented as having CSRD obligations – or that was diligenced on that assumption – may no longer bear them, which affects the accuracy of existing warranties and the value of diligence outputs based on mandatory reports.
- Does the deferral of CSDDD obligations affect disclosed liabilities or contingencies? Sellers may seek to narrow indemnity exposure by pointing to deferred obligations. Buyers, conversely, should consider whether the underlying conduct (value-chain practices, environmental impact) remains a source of civil or regulatory risk irrespective of formal deferral.
- What is the applicable national transposition position? Member States retain discretion in certain areas, and implementation timelines vary. In the absence of completed transposition in a particular jurisdiction, the buyer's legal team should map residual national environmental, labour and governance obligations that may independently generate liability.
Diligence questionnaires and disclosure letters drafted before Omnibus I should be reviewed and, where necessary, re-issued. Targets may have answered questions by reference to obligations that have since been deferred or removed; their answers may be technically accurate but contextually misleading if the regulatory background has shifted since signing.
If you are assessing the ESG risk profile of a target in the EU, our M&A advisory practice can assist with scoping exercises tailored to the post-Omnibus framework across multiple jurisdictions.
Warranties and Indemnities: Drafting Considerations
The interaction between Omnibus I and SPA mechanics is subtle. A well-advised buyer will not simply delete ESG warranties on the ground that obligations have been deferred; deferral does not mean elimination. The key drafting considerations fall into several categories.
Accuracy and Completeness of Sustainability Disclosures
Where a target has produced voluntary or mandatory sustainability reports prior to Omnibus I, those reports will have been generated under a different regulatory assumption. SPA warranties as to the accuracy of disclosed information should specify whether they extend to sustainability reports, and if so, whether they are qualified by reference to the applicable standard at the time of publication. Buyers should resist overly broad seller qualifications that would allow inaccuracies in pre-Omnibus reports to fall outside the warranty regime simply because the underlying reporting obligation has since changed.
Forward-Looking Compliance Warranties
Even where CSDDD obligations are deferred, a sophisticated buyer will want a warranty that the target's business practices are not such as to create material exposure once obligations do come into force. This is not a guarantee of outcome; it is a reasonable representation that the seller has not, to its knowledge, identified value-chain practices that would plainly breach the directive's requirements when applied. The CJEU's developing jurisprudence on environmental liability and the general principle of effective judicial protection in EU law mean that regulatory deferral does not insulate a company from civil claims grounded in pre-existing conduct.
Tailoring Indemnities to Residual Risk
Omnibus I's scope reduction creates an asymmetry: the seller knows which ESG obligations the target actually faced before the amendment, while the buyer must reconstruct that picture from disclosed documents. Specific indemnities – rather than general warranty catch-alls – are a more precise tool. These might cover: pending regulatory investigations commenced before Omnibus I took effect; contractual obligations to customers or financing counterparties that reference CSRD or CSDDD compliance; and ESG-linked financing covenants where a target's reclassification could constitute a default or trigger a repricing.
Limitation Periods and Survival
ESG liabilities can materialise over long timescales. Environmental damage in the value chain, social governance failures and data-reporting inaccuracies may only become visible years after closing. Buyers should resist standard survival periods that equate ESG warranties with general business warranties; a longer tail is commercially defensible where the underlying risk horizon is genuinely extended.
W&I Insurance After Omnibus I
The W&I insurance market had begun pricing ESG risk into policy terms before Omnibus I, and underwriters are now recalibrating. Several issues arise for deal teams relying on W&I cover to bridge warranty gaps.
First, many existing policy templates include specific exclusions for regulatory changes affecting disclosed ESG obligations. Underwriters may seek to exclude losses arising directly from a company's reclassification under Omnibus I, on the basis that such reclassification was foreseeable from the date of the directive's adoption. Buyers should scrutinise exclusion language carefully, particularly the interaction between "known regulatory change" exclusions and ESG-specific carve-outs.
Second, the quality of ESG disclosure schedules is now under greater scrutiny. Insurers are aware that diligence conducted before Omnibus I may be stale, and some are conditioning coverage on updated ESG disclosure being provided before binding. This places time pressure on deal teams and may require supplemental diligence exercises at late stages.
Third, where a target operates across multiple EU Member States, the variation in national transposition creates a patchwork of residual obligations that a single W&I policy may not efficiently cover. Specialist riders or separate national policies may be warranted depending on deal value and geography.
Cross-Border Implications and Third-Country Targets
Omnibus I is an EU instrument, but its effects extend beyond EU borders in several ways relevant to international M&A. A non-EU target acquired by an EU buyer may still be subject to CSDDD obligations if it falls within the directive's jurisdictional reach – determined by turnover generated in the EU, not by place of incorporation. The deferral of CSDDD obligations does not eliminate this exposure; it delays the point at which enforcement can begin.
Conversely, an EU target being acquired by a non-EU buyer must still disclose its regulatory position under Omnibus I to the acquirer's legal team. The acquirer's home jurisdiction may impose its own ESG due diligence requirements – increasingly common in the UK, Switzerland and certain Asia-Pacific markets – that are not aligned with the revised EU framework. Deal counsel must map both regimes and identify where conflicts or gaps arise in the combined diligence picture.
For a detailed analysis of the CSDDD's civil liability mechanics and how they interact with deal structure, see our analytical note on CSDDD civil liability in the EU.
Strategic Recommendations for Transaction Parties
Given the moving regulatory landscape, the following strategic postures are appropriate for parties currently engaged in or planning EU M&A.
For Buyers
- Conduct a fresh scope analysis: Do not rely on pre-Omnibus diligence to determine which ESG obligations apply to the target. Map the target against the revised CSRD and deferred CSDDD thresholds using Omnibus I directly.
- Disaggregate regulatory from commercial ESG risk: Even where formal obligations are deferred, ESG failures may affect financing terms, customer contracts, supply-chain relationships and reputational value. These risks are not captured by reference to regulatory scope alone.
- Pressure-test W&I policy terms: Review ESG exclusion language, demand updated disclosure schedules, and consider whether policy limits adequately reflect post-Omnibus residual exposure.
- Negotiate specific indemnities for known historical ESG issues: General warranty coverage is an imprecise tool for long-tail ESG risk. Bespoke indemnities tied to specific identified matters offer more reliable protection.
For Sellers
- Audit and update disclosure schedules proactively: A seller that disclosed ESG obligations based on pre-Omnibus assumptions should review whether those disclosures remain accurate and complete under the revised framework.
- Define warranty scope with precision: Omnibus I's scope reduction may legitimately narrow a seller's warranty exposure; ensure that SPA language reflects the actual post-Omnibus regulatory position rather than pre-amendment assumptions.
- Anticipate buyer requests for forward-looking compliance representations: Even with CSDDD deferred, buyers will request assurances about value-chain practices. Sellers should engage with these requests substantively rather than resisting them wholesale.
Our corporate disputes team has experience advising on post-closing ESG warranty claims and can assist in structuring indemnity provisions that are enforceable across relevant EU jurisdictions.
Open Questions and Interpretive Uncertainty
Several material uncertainties remain unresolved as of the time of writing. The precise interaction between deferred CSDDD obligations and existing national environmental liability regimes has not been authoritatively settled by the CJEU. It is not yet clear whether acts or omissions occurring during the deferral period will be assessed against CSDDD standards when enforcement ultimately begins, or whether a purely prospective approach will be taken.
ESMA and EBA guidance on how regulated financial institutions should treat ESG disclosures from targets that have been reclassified under Omnibus I is evolving. Acquirers that are themselves regulated entities – banks, investment firms, insurance undertakings – face an additional layer of supervisory expectation that may not be fully addressed by revised SPA terms alone.
National transposition of Omnibus I's changes will proceed at different speeds and with different emphases. Until Member State implementing measures are settled, parties in cross-border transactions involving multiple EU jurisdictions should treat the legal position on residual ESG obligations as provisional and build contractual flexibility accordingly.
Outlook
The trajectory of EU ESG regulation, notwithstanding the rationalisation introduced by Omnibus I, continues to move towards greater integration of sustainability considerations into corporate and financial law. Deferral of obligations creates a window, not a reversal. M&A practitioners who treat Omnibus I as a reason to reduce ESG diligence intensity risk mispricing targets whose regulatory position will tighten again once the deferred obligations come into force.
The more durable approach is to distinguish clearly between formal regulatory scope – which Omnibus I has changed – and underlying ESG risk, which the directive does not eliminate. Deal structures that reflect both dimensions will be more resilient to post-closing disputes and better positioned for regulatory developments that remain in progress.
If you are navigating ESG warranty negotiations or conducting due diligence on a target affected by the Omnibus I changes, our team is available to discuss the specific circumstances of your transaction. Please reach out at info@ferrazwhitmore.com or visit our contacts page to arrange a consultation.
Disclaimer: This publication is provided for informational purposes only and does not constitute legal advice. The information herein should not be relied upon as a substitute for professional legal counsel tailored to your specific circumstances. Ferraz & Whitmore assumes no liability for actions taken or not taken based on the contents of this material. For advice regarding your particular situation, please contact info@ferrazwhitmore.com.