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Under Directive (EU) 2026/470, the scope of the Corporate Sustainability Reporting Directive (CSRD) has been substantially narrowed. Companies generally fall within scope where they exceed both 1,000 employees and €450 million in net turnover.

For many companies, this means that mandatory CSRD reporting — including reporting on material physical climate risks — will no longer apply.

However, for companies that remain within the CSRD, physical climate risk continues to be part of the European Sustainability Reporting Standards (ESRS).

Physical Climate Risk Remains in ESRS

The revised ESRS E1 adopted by the European Commission in July 2026 simplifies climate reporting but retains dedicated requirements addressing:

• identification of physical climate risks;
• climate scenario analysis;
• exposure and sensitivity of assets and activities; and
• resilience to climate change.

In other words, the Omnibus changes the scope and reporting burden, but it does not remove physical climate risk from the climate reporting framework.

Companies remaining subject to CSRD must still assess physical climate risks where these are material to the business.

EU Taxonomy Requirements Also Remain Relevant

The EU Taxonomy creates a separate consideration.

For economic activities subject to the relevant technical screening criteria, physical climate risk remains embedded in the requirements for climate adaptation and Do No Significant Harm.

The criteria require:

• Screening the activity to identify physical climate hazards that may affect it during its expected lifetime.
• Where risks are identified, carrying out a climate risk and vulnerability assessment to determine their materiality.
• Assessing adaptation solutions that can reduce the identified risks.

For long-lived assets, the assessment must use forward-looking climate projections consistent with the expected lifetime of the activity.

Importantly, the Taxonomy does not create a general physical climate-risk assessment obligation for every company.

But where a company seeks to demonstrate Taxonomy alignment for an activity to which these criteria apply, the underlying climate risk and vulnerability assessment requirements remain.

What Does This Mean in Practice?

The Omnibus therefore creates three different situations.

Companies remaining within CSRD scope

Physical climate risk assessment and disclosure remain relevant under ESRS where the risks are material.

Companies outside the revised CSRD scope

They may no longer have a mandatory CSRD obligation to assess and disclose physical climate risks.

However, relevant EU Taxonomy requirements may still apply depending on the activity and the company’s Taxonomy reporting or alignment objectives.

Companies outside both mandatory frameworks

There may be no specific EU sustainability-reporting obligation requiring a physical climate risk assessment.

But the underlying business exposure remains unchanged.

Floods, heatwaves, droughts, storms and other hazards can still affect asset performance, operational continuity, insurance, financing and long-term value.

A Regulatory Change, Not a Change in Risk

The most important distinction is therefore between regulatory obligation and physical exposure.

The Omnibus has reduced the number of companies required to report on climate risk.

It has not removed physical climate risk from ESRS for companies that remain in scope.

And it has not removed the climate risk and vulnerability assessment requirements embedded in relevant EU Taxonomy criteria.

For companies no longer subject to mandatory reporting, this creates a strategic choice.

They can treat the regulatory relief as a reason to stop assessing physical climate risk.

Or they can use it as an opportunity to focus less on disclosure and more on the questions that matter for decision-making:

• Which assets are exposed?
• How vulnerable are they?
• What could the financial impact be?
• Which adaptation measures can reduce the risk?

The Omnibus changes who has to report physical climate risk. It does not change who is exposed to it.

How are your assets exposed to physical climate risks?

Do you want to learn more? Contact us and connect with us on LinkedIn to learn more about climate resilience.