When the EU Directive on sustainability reporting came into effect in early 2023, champagne corks likely popped in some audit and consulting firms. Industry insiders recall a gold rush atmosphere, with talk of a „license to print money.“ In Germany alone, more than 13,000 companies – with staggered deadlines – would have been required to submit a sustainability report over the coming years. This report would have been subject to external auditing.

This created a stir in the business landscape. Mid-sized companies, in particular, feared the administrative burden of the Corporate Sustainability Reporting Directive (CSRD). „When you asked auditors about the biggest drivers of growth in recent years, sustainability always ranked among the top three topics“, says Jörg Hossenfelder, Managing Director of the research and consulting firm Lünendonk & Hossenfelder.

According to data from the firm, auditors were recently generating on average only 3% of their revenues in the sustainability segment. But that was due to the slow implementation of the CSRD into German law – which had not yet occurred. As a result, most clients were waiting. „For 2025 and beyond, the industry had expected a big wave of sustainability reports to audit.“

These hopes were abruptly ended by the EU's Omnibus Initiative. The initiative is designed to ease the ESG regulatory burden on companies. It reduces both the complexity and the scope of the regulation: About 80% of the companies that were previously subject to the CSRD will be exempt.

Thus the Omnibus Initiative has significantly reduced the potential market for auditors. „The growth prospects in the sustainability sector need to be dialled back“, says Alexander Glöckner, auditor and head of the ESG competence team at RSM Ebner Stolz. „We have many clients in the upper mid-market who will still be subject to the reporting obligation. However, it’s a major reduction.“

Even Marko Müller, Managing Partner of the medium-sized auditing and consulting firm dhpg, is revising the growth expectations for the ESG sector: „The entire industry expected this to be a massive area – from data collection to updating key metrics to auditing sustainability reports,“ says Müller. Although the potential was not as great as in traditional financial reporting business, „it didn't seem too far off.“ Since the Omnibus Initiative, it’s clear that the sustainability sector will remain significantly smaller.

Since the previous government did not implement the CSRD into national law, even the largest German corporations are not yet required to submit audited CSRD reports. The industry had planned for these revenues in the current reporting season. Companies had already appointed their sustainability auditors at their 2024 annual general meetings. This state of uncertainty will continue until the law is enacted, which according to Glöckner "might happen in 2025, but it’s not guaranteed.“ Also, auditing revenues from companies that are now subject to the reporting obligation two years later, due to the Omnibus Initiative, are pushed into the future.

Forvis Mazars has also observed that demand for sustainability audits is lower than expected for the 2024 reporting year due to the CSRD’s failure to be implemented into German law. Not all listed companies that were expected to appoint auditors for a potential audit have voluntarily continued with the audits, the firm reports. For the current year, there is also reluctance, as the legal audit obligation for 2025 is still uncertain. „The overall demand for ESG audits from large companies has naturally shifted toward 2027.“ Currently, the focus is more on supporting clients with data collection or reviewing draft reports.

How severely individual firms are affected by the Omnibus Initiative depends heavily on their setup. „We have flexible capacity in-house because our audit teams would have taken on many of these projects“, notes Glöckner of RSM Ebner Stolz. Colleagues are being reassigned to projects in other areas. Additionally, the auditing and consulting firm plans to shift business internally wherever possible: „Where we no longer do audits, we can focus on consulting business.“

At dhpg, many of the clients are mid-sized companies. „Just in autumn 2024, we were concerned we wouldn't be able to handle all the sustainability projects because some clients were running late“, notes Müller. Now, the situation has changed. Projects for clients that remain subject to the reporting obligation are more spread out over time. Among those who are entirely exempt from the reporting obligation, Müller is focusing on indirect effects: „Some will need to report sustainability metrics to lenders, business partners, or rating agencies“, he explains. For these companies, a voluntary sustainability report may be an option. However, it remains unclear how many will pursue this route. Müller’s priority is to keep the workforce together. „We rely on flexibility. Anyone not busy with sustainability reporting can help out in financial reporting.“

Specialised boutiques, on the other hand, have fewer options to redeploy their workforce. „Both in auditing and consulting, there will be providers whose client base will be entirely exempt from the reporting obligation“, expects auditor Glöckner. „This is likely to increase consolidation pressure among smaller firms.“

Harald Nikutta, who recently co-founded the consultancy Navigator's First, together with Kai Michael Beckmann, predicts that the Omnibus Initiative will significantly alter the market for sustainability audits. He previously worked for several years at PwC, Mazars, and Control Risks. „Companies that count international corporations and large mid-sized firms among their clients will still be well occupied. For smaller auditors, however, it is becoming difficult – there are already reports of layoffs“, he says. In some firms, the utilisation rate is now well below 50%.

Nikutta supports the approach of the Omnibus Initiative. „Many companies have approached sustainability purely due to regulatory pressure. The extended timeline now offers the opportunity to think more about the business case and resilience", he says. The strict requirements had previously triggered defensive reactions from some.

While auditing businesses lose some of their work, management consultants are increasingly focusing on strategic ESG projects. Revenues from sustainability consulting are still limited. In 2024, they represented a 0.8% market share according to the German Association of Management Consultancies. However, growth projections for the sector were at the top, at 12.6%. Strategy consultancy Bain has some clients who now have two more years to prepare their first CSRD reports. „Companies were under great time pressure recently and can now refine their strategic approaches“, says Partner Karl Strempel.

In this process, consultant support remains in demand, as does support on numerous other sustainability issues. His teams have recently been „working at full capacity“, notes Strempel. He does not believe sustainability consulting will suffer a major setback, even if the consulting needs decline due to simplifications in CSDDD and CBAM. Consulting firms focused on large clients are already operating at capacity. The relaxation will primarily affect smaller mid-sized companies. „We are already being selective with consulting requests.“

Big Four firm Deloitte states that it has gained many mandates and clients in sustainability in recent years. „Accordingly, we have hired additional staff to support companies with their preparations for regulation and their sustainable transformation.“

The auditing and consulting firm expects that companies will continue their sustainability efforts even after the relief from the Omnibus Initiative, and welcomes this easing. „We can now support companies in their transformation projects with realistic timelines," it writes. Since Deloitte typically advises larger companies, the majority of these will still fall under the new regulations.

Katrin Meyer, Partner at the auditing and consulting firm Forvis Mazars and specalizing in ESG strategies, perceives a „changed dynamic“ due to the Omnibus plans. The time pressure has been alleviated, but projects are still ongoing: „The overall tone is: We can breathe now, but we’re not letting the pen fall completely.“ In consulting, she also sees room to shift priorities: „Right now, the regulatory aspect is receding into the background, while strategic topics like climate risk analysis and ESG data management are in high demand“, observes Meyer.

The consulting firm Accenture expanded its ESG division three years ago through the acquisition of the sustainability consultancy Akzente. Sabine Braun, who founded Akzente in 1993 and is now Director at Accenture Sustainability Services, says the Omnibus Initiative has led to „a sigh of relief“ from many companies. „In consulting, we’ve noticed a slight deceleration, but we’re not unhappy about that. Almost all CSRD projects have shown that there is still much to do.“

From companies that have already prepared for ESG regulation, follow-up projects are coming in, such as improving data management. However, it’s possible that fewer new projects will start if companies are exempt from CSRD reporting. „Smaller mid-sized companies may wait for a while“, says Braun. But these are not part of Accenture's core client base.

Smaller ESG consultancies with mid-sized client bases are likely to feel the impact of the Omnibus Initiative more strongly, predicts Braun. Consolidation pressure is already high in the fragmented consulting landscape. The limitations of a small unit were something the founder of Akzente experienced herself. „For instance, we could never have covered the topic of digitization the way we can now at Accenture.“ She expects that specialized boutique consultancies will join larger entities. „From my perspective, client requirements are moving away from stand-alone consulting on sustainability or supply chain management toward a more holistic approach.“

Lünendonk Managing Director Jörg Hossenfelder expects that consulting firms will be able to compensate for the effects of the Omnibus Initiative by shifting business to other consulting areas more easily than auditing firms. While auditors will still retain the large-volume, and therefore potentially more lucrative, mandates from corporations that remain subject to reporting requirements, the demand for auditing services will significantly decrease as thousands of companies are relieved from the reporting obligation. „This will be felt in the fees“, predicts Hossenfelder.

He anticipates a market consolidation in the auditing sector. „Especially mid-sized consulting firms will struggle – they have higher cost blocks than smaller specialists and are less flexible. At the same time, they have fewer opportunities to deploy their teams elsewhere than larger firms“, explains Hossenfelder. For these mid-sized auditors, who also expanded their capacities in anticipation of increased ESG revenues, it could become difficult to retain their teams. „Some will have to let people go.“