EU 2025 Sustainability Regulation Outlook: Unlocking competitiveness and growth

Resilience should be central to companies’ responses to the regulatory landscape. Cultivating flexibility and agility, and considering scenarios can help companies manage the policy shifts while at the same time seizing opportunities to strengthen organizational and operational resilience through sustainability initiatives. This could include fostering deeper supplier relationships to help mitigate weather-related disruptions to the supply chain, securing long-term contracts for sustainable materials in the face of resource scarcity, or adapting and refining existing practices based on new insights gleaned from materiality assessments, such as diversifying sourcing strategies to help address vulnerabilities revealed by nature-related dependencies.

This outlook explores the potential trajectory of EU sustainability regulation in the year ahead and identifies some of the key areas where companies may need to adapt and respond to thrive in a sustainability-driven future.

Companies are urged to ask themselves the following key questions when leveraging sustainability efforts:

• With energy transition and circularity being key policy priorities for the European Union, how will your company leverage innovation and operational investments to help deliver measurable progress towards net zero emissions and a circular business model?

• How can you integrate the insights generated through corporate sustainability reporting into your business management systems to unlock new value and enhance performance?

• What solution-driven tools and approaches, such as life cycle assessments, artificial intelligence, and platforms for data transparency and traceability can you adopt to address multiple regulatory requirements efficiently and simultaneously?

• Are your risk and regulation monitoring and reporting mechanisms robust enough to provide early warnings and timely insights into emerging policies throughout 2025 as well as potential changes to existing policies within the European Green Deal?

• Are you modeling how the current requirements under the Green Deal and the new legislation might interact with each other? Are you feeding the results into your scenario analyses?

Competitiveness as the engine of prosperity

The European Union’s legislative vision for 2025 to 2029 is articulated in documents such as the ‘Political guidelines’ from the President of the European Commission, Ursula von der Leyen,¹ and the European Council’s Budapest Declaration,² and further developed in the Commission’s Competitiveness Compass.³ It emphasizes competitiveness as a driving force for Europe’s prosperity. While the European Union remains committed to the sustainability objectives of the European Green Deal, achieving these goals will now be balanced with the pursuit of economic growth. This represents a significant shift in the European Commission’s approach, with the sustainability agenda now being evaluated for its potential to support, rather than obstruct, economic competitiveness and delivery of tangible economic benefits.

This strategic recalibration reflects the starkly different global landscape the European Union faces now, compared to five years ago. Europe faces economic uncertainty, intensified competition, and a more complex geopolitical landscape. Through the course of 2024, regional business leaders, policymakers and industry groups called on the European Union to tackle these challenges. Key interventions included the Antwerp Declaration for a European Industrial Deal in February;⁴ the Letta report, “Much more than a market,” in April;⁵ and the Draghi report, “The future of European competitiveness,” in September.⁶ The message was clear: A business-friendly environment and a revamped industrial strategy focused on growth are critical to the EU’s future success.

Political shifts create uncertainty around the sustainability agenda

Although this can be seen as pragmatic, it makes the future of the European Union’s sustainability agenda more uncertain in an ever-changing global landscape.

Political shifts within the European Union, particularly following last year’s European Parliament elections and upcoming national government changes, are creating a more complex legislative environment. Reaching agreement on new legislation is likely to be more challenging and time-consuming as member states and industry debate how best to advance sustainability goals to bolster Europe’s competitive edge. At the same time, previously finalized legislation could be reopened and changed, as evidenced by the recent 12-month delay to the EU Deforestation Regulation (EUDR) and upcoming delays to the Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD) under the Sustainability Omnibus Package.

The geopolitical landscape is adding to volatility. The European Commission is balancing its sustainability agenda while preserving a level playing field for businesses. The uncertainty is compounded for EU companies operating internationally or those with value chains extending to third-country companies. These companies may need to navigate new risks in this evolving landscape, including potential disruptions to long-established supply chains, while also adapting to potentially shifting European sustainability policies. 

Turning the EU sustainability agenda into priorities and action

The European Union’s new sustainability agenda has three core themes: implementing a new industrial strategy focused on the energy transition, minimizing the regulatory burden, and mobilizing finance.

A new industrial strategy to strengthen the business case for the energy transition

The European Commission has introduced the Clean Industrial Deal, bringing climate and competitiveness under one overarching growth strategy.⁷ By taking steps to bolster competitiveness and economic resilience, and help address climate change, it aims to secure the European Union’s status as a prime manufacturing hub, including for energy-intensive industries, while promoting clean technologies and new circular business models. The Deal responds directly to the European Council’s call for a broad industrial policy that balances market principles with strategic economic and sustainability considerations.

The Deal encompasses a multiyear rollout of various packages, plans and legislative measures. One key legislative element is the Industrial Decarbonisation Accelerator Act, designed to streamline the planning and permitting processes for clean energy projects. This is important given that, according to a BusinessEurope survey, 83% of companies cite the complexity and length of time required for EU industrial permitting as a major investment obstacle.⁸ This challenge is further influenced by mainland China’s significant role in clean energy supply chains which, attracted 81% of global investment in 2024.

Another major legislative initiative in the Deal is the Circular Economy Act. It will build on the regulatory landscape for circularity, focused on creating market demand for secondary materials, particularly critical raw materials where the bloc faces supply vulnerabilities. The introduction of the Act heightens the emphasis on circularity, recognizing its crucial role in addressing the European Union’s reliance on importing overseas clean energy technologies and bolstering its global competitiveness.

Overall, the Clean Industrial Deal signals a shift towards removing roadblocks to sustainable growth and changing the business case for investing in environmentally sustainable technologies. But realizing the full potential of these initiatives means complex challenges might need to be addressed. Securing public and private funding, cutting through bureaucracy and supporting workers transitioning out of carbon-intensive sectors may be important.

Minimizing the regulatory burden for easier and faster business

The EU is taking steps to simplify EU law and cut red tape, recognizing this as important to boosting competitiveness. Two out of three companies in a survey by the European Investment Bank pointed to business regulations as a major factor hindering investment in the European Union.⁹ Valdis Dombrovskis, the new commissioner for implementation and simplification, is overseeing efforts to reduce the administrative burden and reporting requirements by at least 25% (35% for small and medium-sized enterprises). The European Council has called for the urgent launch of a “simplification revolution”.¹⁰

A key step is the European Commission’s Omnibus simplification package for sustainability. In the first of a series of Omnibus packages, the proposal introduces significant reforms to the CSRD, EU Taxonomy Regulation, Carbon Border Adjustment Mechanism (CBAM) and CSDDD to reduce annual administrative costs by €6.3 billion (US$ 7.2 billion).¹¹ Proposed changes include reducing the scope of the CSRD by removing around 80% of companies, and delaying the CSRD application deadline by two years for companies that have not yet started reporting, to prevent them from having to commence the reporting process only to be excluded later due to changes in reporting thresholds. Other major adjustments include limiting EU Taxonomy reporting obligations to the largest companies and limiting information requests in the value chain under the CSRD and CSDDD. The scope of due diligence in the value chain under the CSDDD is also generally limited to direct suppliers, alongside simplifications to other aspects of the due diligence requirements. For CBAM, small importers—mostly small and medium-sized enterprises and individuals—will be exempted from the obligations, while emissions calculations and reporting will be streamlined for importers that remain in scope.

As EU lawmakers debate and finalize the reforms, companies should remain vigilant and adaptable, prepared to re-evaluate their CSRD reporting strategies as the scope and extent of the proposed changes become clearer. This includes staying informed about potential shifts in reporting requirements. While previous work on sustainability reporting remains valuable, companies should prioritize activities that focus on material business concerns and strategy, such as double materiality assessments and tracking and managing the relevant sustainability metrics for overall business performance. This business-driven approach can enable companies to navigate the significant regulatory uncertainty, leaving them able to move forward regardless of the final form the reforms take. Companies should minimize activities undertaken solely for compliance purposes to avoid unnecessary costs and potential rework.

Mobilizing finance to boost EU competitiveness

President von der Leyen has declared her tenure an “investment Commission,”¹² underscoring the vital role of both public and private investment in bolstering the EU competitiveness. The Commission announced a package of measures in the Clean Industrial Deal to channel greater public and private investment into the industrial energy transition and clean technology. Plans include expanding guarantees through the European Investment Bank (EIB) to mitigate risks associated with investments in renewable energy and electric grid components, and the introduction of an Industrial Decarbonisation Bank. The Bank is expected to have a €100 billion funding target (and €400 billion mobilization target), and utilize resources from the Innovation Fund, revenues from the EU Emissions Trading System, and a revised InvestEU program. Another focus is the targeted reform of State aid rules to simplify the process for member states to support low-carbon investments within their countries.

An important question, however, is whether the necessary funding will materialize. The Draghi report highlights the “massive and unprecedented” scale of investment needed, with the energy transition alone requiring over half the estimated €750 billion to €800 billion in additional annual investment required for the European Union to enhance its competitiveness. By directly addressing key investor concerns such as lengthy permitting processes, project delays, and high material costs, the Deal can create a more favorable and attractive risk environment for clean energy projects. However, the speed at which these improvements can be implemented in the short-term and, consequently, the pace at which funding materializes for companies this year, remain open to question.

The European Union has reached the peak volume of sustainability legislation

Another key tenet of the European Union’s new sustainability agenda is the implementation of existing sustainability legislation. Work is under way to translate the ambition set out under the last Commission’s mandate into actions. This includes transposing directives into national law, issuing guidance for member states and companies, and finalizing over 140 pieces of secondary legislation.¹³ Companies need to track and assess these changes to understand in detail how the new rules will be applied.

Recognizing the potential burden created by its sustainability agenda, the European Commission will provide targeted support for industries navigating the influx of new regulations. Interventions will be designed to help ease compliance and bolster strategic autonomy, particularly in sectors facing significant hurdles or deemed important for EU competitiveness.

Beyond 2030: What should be planned today?

The European Union is preparing to legislate for a 90% net emissions reduction target by 2040 (relative to 1990), aiming to solidify Europe’s position as a sustainability leader.¹⁴ The target will also shape the bloc’s post-2030 climate policy framework. Success in achieving both the 2040 emission reduction target and the policy objectives within the framework depends on effective implementation of the sustainability legislation and prior achievement of the 2030 emission reduction target. However, a 2024 report from the EU Scientific Advisory Board on Climate Change stressed the need for greater effort across all sectors for the European Union to achieve its 2030 emission reduction target.¹⁵ This highlights the need for the European Commission to prioritize effective implementation and provide the necessary support. However, the current uncertainty surrounding the overall sustainability agenda raises questions about the extent to which the EU’s 2030 target will be achieved, potentially affecting too the longer-term climate ambitions.

The 2040 climate legislation and the targets set within the European Union’s post-2030 policy framework will influence companies’ investment decisions today. Companies must factor these policy decisions, their potential volatility and their effect on the business case for investments into their five-year plans. Understanding the strategic landscape, its direction and impact on investment risks and opportunities is therefore important.

Combining resilience and sustainability: Key actions for companies in 2025

The year 2025 marks a turning point for corporate sustainability, characterized by a complex interplay of regulatory ambition and uncertainty. As the European Union unveils its new sustainability agenda, companies should navigate the evolving regulatory landscape carefully, choosing when to take decisive action and when to wait for greater clarity.

Sustainability should be seen not only as a resilience strategy, but also as a fundamental element in building a future-proof business—one that thrives on low-carbon and circular models to drive both resilience and competitiveness. A transition from reactive risk management to a proactive approach that anticipates, absorbs, and adapts to change, should be considered. This can build the flexibility and agility needed to navigate the shifting policy landscape effectively. For example, integrating horizon scanning, scenario planning and early warning systems to assess the potential effect of changes to EU sustainability regulations can equip companies with the foresight to allocate resources strategically and prepare for a range of outcomes.

Recognizing that regulatory actions themselves can be powerful drivers of organizational resilience is also important. For instance, improving product reusability to reduce waste not only aligns with the objectives of circularity legislation but can also enhance resilience by mitigating inefficiencies and vulnerabilities to global supply chain disruptions.

Companies should therefore focus on three key areas in 2025:

• Data and technology: Companies face increasing sustainability data requirements driven by the CSRD, EUDR, Ecodesign for Sustainable Products Regulation (ESPR), and CSDDD. To streamline compliance and minimize burdens, companies can start to identify overlapping data elements across the regulations that apply to them. This will highlight potential data gaps that need addressing and opportunities to scale and adapt existing technological solutions across multiple regulations. Companies should leverage their sustainability data to help unlock business value and drive strategic decision-making. For example, analyzing innovation and new revenue streams as part of CSRD reporting can lead to the adoption of innovative approaches to product design and material sourcing. This is particularly relevant in sectors such as technology, media and telecommunications, where there is a constant demand for lighter, more material-efficient devices with enhanced performance. Information on material origin, hazardous substances and recyclability provides valuable insights for companies in the sector, fueling product improvements by enabling the development of lighter, more efficient devices without compromising performance, as seen in the evolution of smartphones. Designating a dedicated role, such as a sustainability data officer, can be instrumental in helping to ensure that sustainability data is effectively managed, analyzed and translated into actionable business insights that inform both product and corporate strategy going forward.

• Mapping value chains: Both current and upcoming EU sustainability initiatives (including CSRD, EUDR, CBAM, CSDDD and ESPR) are putting value chains under the microscope by requiring companies to scrutinize the origin and life cycle of their materials and products. Regardless of prospective amendments to some of the regulations, the underlining focus on the value chain will persist in some form. Moreover, understanding and optimizing the value chain can help bring inherent benefits to companies, such as increasing resilience and efficiency. A first step is to identify key impact areas within the value chain or product life cycle to determine where reporting is needed. For many, this will focus on upstream suppliers, requiring a review of procurement policies to incorporate standardized data collection on key sustainability metrics. Recognizing that suppliers may be at different stages in their sustainability journey, a phased approach—starting with a smaller set of material data requests—can be effective. By actively engaging with and supporting their direct suppliers, companies can promote sustainability change in subsequent tiers of suppliers, creating a potential ripple effect throughout the value chain.

• Leverage new opportunities by focusing on enhanced competitiveness: Policy objectives within existing and planned EU energy and energy transition initiatives are designed to dismantle barriers hindering industry. Short-term opportunities available for companies in 2025 include participating in a €1 billion pilot auction for the industrial energy transition and leveraging power purchase agreements to help mitigate investment risks in renewables. Once available, companies should capitalize on streamlined project permitting processes, new sources of finance, and reduced energy costs to incentivize industrial electrification. To leverage these initiatives effectively, companies should familiarize themselves with emerging funding opportunities, including those offered by the Competitiveness Fund under the EU multiannual financial framework (the bloc’s long-term budget) in 2028, revisions to the Innovation Fund, the InvestEU initiative, the State aid framework, and the new facility for industrial energy transition. Companies should understand the objectives of the programs, targeted sectors, expected outcomes, and how the initiatives align with the company’s energy transition vision. After shortlisting the most relevant programs, it is necessary to understand key project-related aspects, including eligibility, application process, applicable net-zero technologies, including maturity, and energy transition or energy security potential. Companies can then prepare a business case to understand the benefits, costs and potential risks.

By embracing a proactive, resilience-focused approach, companies can navigate Europe’s evolving sustainability legislative landscape and unlock new avenues for growth, innovation and long-term success. The companies that thrive in this new era will likely be those that view sustainability not as a constraint but as a catalyst for building a more resilient, competitive, and future-proof business (figure 2).