Three developments in 2026 appear to point in opposite directions. The EU and Taiwan have moved large numbers of small and mid-sized listed companies out of mandatory disclosure. China’s first mandatory sustainability reports land this year. And the EU’s new rules on corporate environmental claims begin to apply on September 27. Most companies, reading the first development, conclude that regulatory pressure on sustainability is easing.
We read it differently. This round of deregulation creates new exposure for small and mid-sized companies, for three reasons. Disclosure exemptions are drawn by company size, while the rules on environmental claims apply regardless of size. Exempted companies lose the push to upgrade their sustainability reporting, but they keep their obligations around what they say publicly. And penalties for unsubstantiated environmental claims already have precedent, with the risk of a finding of illegality rising from this year.
Key Takeaways
- Disclosure obligations are set by company size. The rules on environmental claims apply to companies of every size.
- The EU’s EmpCo Directive applies from September 27, 2026. It expressly prohibits generic, unsubstantiated environmental claims, offset-based carbon-neutral labels, and sustainability labels that companies create themselves.
- The EU and Taiwan have eased mandatory disclosure for small and mid-sized listed companies, and China’s first mandatory sustainability reports arrive in 2026, so disclosure duties are concentrating on large companies.
- Companies should take four steps in order: inventory public environmental claims, reclassify sustainability work by purpose, set rules for the use of AI, and confirm the applicable path by operating market.
Disclosure Duties Now Rest with Large Companies
The EU’s Corporate Sustainability Reporting Directive (CSRD) was originally to bring about 50,000 companies into scope in three waves, with listed SMEs in the third wave reporting from fiscal 2026. Omnibus I, the first part of the EU’s Omnibus Simplification Package, took effect on March 18 this year. Its core is an amendment to the CSRD that limits application to companies with more than 1,000 employees and net turnover above €450 million, with both conditions required.
This removes the mandatory requirement for most SMEs and cuts the number of companies subject to the CSRD from about 50,000 to about 5,000.
The Omnibus I directive also raises the threshold of the Corporate Sustainability Due Diligence Directive (CSDDD) to companies with more than 5,000 employees, removes the EU-wide civil liability provision, lowers the maximum fine to 3% of global turnover, and postpones application to 2029. The accompanying revised European Sustainability Reporting Standards (ESRS) were adopted by the European Commission in July. They cut mandatory data points by about 60% and are expected to become mandatory from fiscal 2027.
On September 23, Taiwan’s financial and environmental authorities announced changes to how the IFRS Sustainability Disclosure Standards apply to listed and OTC companies, in line with the EU’s Omnibus I simplification and to ease the reporting burden. Under the “Five Dimensions of Sustainability Collaboration” they released, the companies subject to mandatory application fall from all 1,970 listed and OTC companies to about 560. About 1,410 small and mid-sized listed and OTC companies move from mandatory to voluntary disclosure.
Those with paid-in capital below NT$2 billion must still disclose basic information on climate governance, risk management, and Scope 1 and Scope 2 greenhouse gas emissions.
China is moving in a different direction but along the same path of sustainability governance. The Sustainability Report Guidelines for Listed Companies, issued by the Shanghai, Shenzhen, and Beijing exchanges, require constituents of the SSE 180, STAR 50, SZSE 100, and ChiNext indices, along with companies listed both onshore and offshore, to publish their first report, covering fiscal 2025, no later than 2026. The first mandatory disclosures therefore land this year.
The Ministry of Finance targets a basically complete standards system by 2030, with an implementation path that extends step by step from listed to non-listed companies, from large enterprises to SMEs, and from voluntary to mandatory.
Viewed together, disclosure obligations are concentrating on large companies in all three jurisdictions. The adjustments in the EU and Taiwan are a temporary concession to competitiveness concerns, and the long-term direction of decarbonization and transition has not changed. Chinese SMEs are not yet in scope only because their timetable has not arrived. Their inclusion is already written into the roadmap.
Unsubstantiated Environmental Claims Will Cost More
The Empowering Consumers for the Green Transition Directive (EmpCo), Directive (EU) 2024/825, applies from September 27, 2026. It prohibits generic environmental claims that cannot be substantiated, lists carbon-neutral product labels based on offsets as a blacklisted commercial practice, and bans sustainability labels that companies create themselves.
In 2021, the European Commission and consumer protection authorities in the member states conducted the first sweep of websites for greenwashing, reviewing 344 sustainability claims. Of these, 42% were found to be exaggerated, false, or deceptive, 53% were vague, misleading, or unsupported, and 37% relied on generic terms such as “eco-friendly,” “sustainable,” or “conscious.” The categories of statements the directive expressly prohibits are the ones that appeared most often in the sweep.
EmpCo does not start from zero. It amends the Unfair Commercial Practices Directive (UCPD), in force since 2005, which already prohibited misleading environmental claims and which member states have enforced for years. The difference is that enforcement authorities previously had to prove in each case that a statement actually misled consumers. After September 27, a blacklisted type of statement is unlawful once identified, with no case-by-case proof required. Penalties become explicit as well.
For cross-border infringements, the maximum fine member states set may not be lower than 4% of the company’s annual turnover in the country concerned, or at least €2 million where turnover cannot be determined. Countries may set higher levels, and the Netherlands allows penalties of up to 10% of annual turnover.
Taiwan is following the EU regulatory trend in this direction. At the end of December, its environmental authority will issue anti-greenwashing guidelines on the corporate use of sustainability awards and labels. The guidelines require companies to follow three principles of truthful and valid claims, proportionate scope, and no vagueness, provide a self-assessment tool, and prohibit companies from promoting uncertified sustainability claims or labels. The authority describes the purpose of the guidelines as steering companies from encouraging disclosure toward regulating claims.
The following cases were decided under the UCPD, and they show that enforcement authorities were penalizing companies even when the burden of proof was higher. On March 20, 2024, the Amsterdam District Court, applying the Unfair Commercial Practices Directive, found fifteen of KLM’s nineteen environmental claims unlawful. The court held that generic statements of environmental benefit and exaggerated descriptions of the effect of sustainable aviation fuel and tree planting misled consumers.
In earlier cases handled by the Dutch Authority for Consumers and Markets, Decathlon and H&M avoided penalties by donating €400,000 and €500,000 respectively and withdrawing the labels concerned.
On January 21, 2025, the Italian Competition Authority fined three GLS Group companies a combined €8 million. It cited opacity in the organization, funding, and promotion of the Climate Protect program, vague and unverifiable environmental statements on its website, and the compulsory purchase of carbon offset certificates by customers. The Lazio Regional Administrative Court upheld the penalty in June 2026. In August 2025, the same authority fined Infinite Styles Services, the operator of Shein’s European website, €1 million. It found that statements on the site about circular design and recyclability were false.
Claims about eco-friendly fibers in the evoluSHEIN by Design line did not describe lifecycle benefits, and the line accounted for only a marginal share of total products. The targets of a 25% emissions cut by 2030 and net zero by 2050 were stated in generic terms and were even contradicted by the actual increase in the company’s emissions in 2023 and 2024.
On April 2, 2025, the Frankfurt prosecutor’s office fined asset manager DWS €25 million under Germany’s Unfair Competition Act. It found that marketing between mid-2020 and January 2023 using statements such as “leader in ESG” and “ESG is part of our DNA” did not match reality. Together with the earlier US$19 million penalty from the US Securities and Exchange Commission, total fines exceed €40 million.
These cases share two features. None of the penalized companies was found to have falsified data. The problems all lay in statements that were vague, unverifiable, or inconsistent with the facts. The cases include the operator of a cross-border e-commerce platform, so for Chinese companies serving the European market the point of reference is already concrete. Under the new EmpCo rules, similar cases will be handled faster, and penalties will not be lighter.
Fines are only the first cost of unsubstantiated environmental claims. For most SMEs the second cost is more serious. Large multinational buyers commonly use EcoVadis ratings as a threshold for supplier admission. General Motors’ supplier commitment required tier-one suppliers to score 50 or above in each of labor and human rights, ethics, and sustainable procurement by 2025. Johnson & Johnson requires members of its supplier sustainability program to complete an assessment every year.
Most buyers set 45 or above as the minimum for a qualified supplier, and a score below the threshold means exclusion from the bidding list. EcoVadis’s 360° Watch mechanism combines artificial intelligence with human analysis to scan more than 100,000 public sources, including government notices, court judgments, legal settlements, and media reports. Any negative finding counts toward the rating, and a score of 0 on a single theme, or of 25 on two themes, disqualifies a company from a medal.
Through this channel, a penalty decision or an adverse judgment turns into loss of supplier eligibility, and the orders lost are usually far larger than the fine itself.
From the other side, this is also the most direct route for SMEs into international supply chains. The Responsible Beauty Initiative (RBI) in the beauty sector is a ready example. It was launched in 2017 by L’Oréal, Groupe Rocher, Clarins, and Coty, is coordinated by EcoVadis, and has since been joined by L’Occitane, Shiseido Europe, and LVMH beauty. RBI member companies share a common pool of EcoVadis scorecards to track and improve supplier sustainability performance, and they meet quarterly to exchange practices in sustainable sourcing.
For a supply chain company, completing one assessment makes it visible to the qualified-supplier lists of several international beauty groups at once. Sustainability work no longer means responding to one customer at a time. It secures admission across an entire industry in a single step. This is a clear example of tying sustainability investment directly to business outcomes.
SMEs Exempted from Mandatory Disclosure Stand at the Intersection
The key difference between sustainability disclosure rules and rules on environmental claims is the criterion that defines their scope. Disclosure obligations are set by company size, and companies below the threshold are free of mandatory requirements. Rules on environmental claims do not look at size. A company of twenty people and a company of twenty thousand are no different before them.
The intersection first lands on the listed SMEs exempted in the EU and Taiwan. These companies were already publishing sustainability reports, and the difference lies in quality. A large share of the disclosures remain in list form, itemizing what has been done, without a structure tied to operations, verifiable quantitative data, or third-party assurance. The original compliance timetable was meant to push them toward the structured requirements of IFRS S1 and S2, and many companies were already racing to prepare. With the temporary exemption, that push disappears.
Reports continue to be published, but the pressure to improve them is gone. A company that keeps publishing reports keeps generating statements that need to be substantiated. That is a different position from never having disclosed, and the former is not necessarily safer.
For Chinese SMEs, which set of requirements applies depends on the market in which they operate, not on where they are registered or how large they are. Two cases can be distinguished by operating market. Companies serving mainly the domestic market fall under the standards system being rolled out step by step in China. They are not yet included, but inclusion is on a clear timetable. Companies serving international markets are subject to the regulations and customer requirements of their target markets, and these have never been relaxed.
The ESG clauses in European customer contracts, supply chain questionnaires, and consumer protection rules in end markets have not changed in any respect because of Omnibus I. The risk lies in conflating the two. Seeing that domestic regulation has yet to reach them and that the EU has made adjustments, a company may assume that requirements in overseas markets have eased as well.
That misjudgment converts directly into operating risk, and cross-border e-commerce channels are the most likely to trigger a violation by accident, because their copy is updated fastest and their review chain is shortest.
AI Amplifies the Risk
Among the companies we work with, it is already common for sustainability teams to use AI to help draft reports, questionnaire responses, and external copy on environmental claims. The risk arises at three levels.
The first level is content. A sustainability claim requires traceable evidence and clear boundaries for every sentence. Generative AI is good at producing statements that are well formatted and professional in tone but lack factual support, and it does not flag which sentences are inferences. “More environmentally friendly,” “carbon neutral,” and “sustainable materials” are exactly the sentences it most easily writes when left unconstrained, and exactly the category that accounted for 37% of the sweep and that EmpCo expressly prohibits.
If the people using AI lack a comprehensive understanding of international regulation, such statements flow directly onto product pages for the EU market. In the same process, pasting emissions data, supplier lists, and non-public material into public models creates a separate risk of data leakage.
The second level is strategy. A sustainability report starts from the company’s own judgment about its development strategy and vision, which determines which issues are truly material, where resources go, and how far external commitments extend. That judgment can only be made by the company’s senior management. AI relies on the requirements of disclosure frameworks and on what a report typically contains.
The draft it produces has a complete set of topics and a sound structure but lacks the operating core of this particular company, and the report becomes a document that conforms to format rather than an extension of strategy. This kind of deviation cannot be seen in the text. It surfaces only when an investor or rating agency asks why a topic was classified as material and how it corresponds to company strategy.
The third level is external. Regulators, rating agencies, investors, and public interest organizations also use AI, mostly for cross-checking. The EcoVadis 360° Watch described above is a ready example, continuously scanning more than 100,000 sources and counting findings toward the rating as they emerge. If a statement in a report contradicts earlier years’ language, a prospectus, a supplier list, or public news, finding it used to require page-by-page comparison, at a cost so high that almost no one did it. That cost is now close to zero.
Companies use AI to raise the speed of output, and outside parties use AI to raise the speed of verification by a larger margin. The information asymmetry that allowed years of rough disclosure is disappearing, and a company found by an outside party to have problems bears both legal and commercial costs.
Four Steps for Companies, in Order
01
The first priority is to take inventory of public environmental claims. List every environment-related statement across the website, product packaging, e-commerce pages, and sales materials. For each, confirm what the basis is, which document holds it, and what date the document carries, and confirm whether any self-created label is used or any offset-based carbon neutrality claim appears. This comes first because it corresponds to the line that starts being enforced this year, applies uniformly to companies of every size, and already has fines on record.
In the EU sweep, more than half of the cases involved businesses that could not produce adequate evidence, and most companies will get a similar result on their first inventory.
02
The second is to reclassify existing sustainability work by purpose. One category exists because regulation requires it, such as a footprint inventory done purely to fill in a report or offsets purchased so that a carbon-neutral claim can be made. The other exists because the business needs it, such as electricity savings from lower energy use, supply chain eligibility earned through product carbon footprints, or channel acceptance gained from packaging improvements.
This distinction needs to be made now because, once mandatory requirements ease, companies usually adjust investment by project or department, and the same project often serves both purposes. Take a carbon inventory. It is both the data source for a report and a tool for identifying energy waste and supporting energy-saving decisions. If it is stopped only because reporting requirements have been relaxed, what is saved is compliance cost, and what is lost is a basis for operating judgment, a loss that often does not show until the following year.
Separate by purpose first, then decide what to keep. The order cannot be reversed.
03
The third is to set three rules for the use of AI. Which internal data may not enter external tools, who reviews the output and against what standard, and under what circumstances work must be returned to human handling. If a sustainability report is to undergo third-party assurance, the assurance provider will necessarily ask where a statement came from and who confirmed it.
A process in which AI drafts and repeated revisions follow generally cannot meet the assurance provider’s requirements, so the company’s internal rules must be able to answer this question.
04
The fourth is to confirm the applicable path by operating market. Plan the domestic market according to the timetable of the standards system and the international market according to the requirements of the target market. Arrange the two paths separately, and do not infer the loosening of one from the other.
Regional Rules Will Adjust, but the Global Sustainability Trend Will Not
Omnibus cuts the administrative burden of disclosure reporting for SMEs, yet the EU’s decarbonization targets have not changed, and the same holds for the direction of Taiwan’s reduction of mandatory disclosure requirements. China’s sustainability roadmap currently runs to 2030, extending from large enterprises to SMEs and from voluntary to mandatory. A temporary relaxation is an adjustment between competitiveness and regulatory intensity. The long-term direction has not moved.
The real window this year does not lie in doing less. It lies in shifting the resources originally invested to fill in forms toward the two sides of operations and environmental claims. The former decides whether sustainability work keeps receiving budget, and the latter decides whether the environmental claims the company makes publicly can withstand verification. The test for whether an investment is worthwhile can be simple. If what remains would be void after changing platform or changing regulation, it is a cost.
If it is still there after the regulation changes, still there after the people change, and still useful in the next fiscal year, it is accumulated capability.
taasdesign has long provided sustainability and brand strategy consulting, helping companies connect sustainability work with business objectives and ensuring that every claim made externally has a traceable basis. If your company is reassessing its sustainability plans, we would be glad to talk.
