ESG Reporting Frameworks: What Lies Ahead?

In today’s rapidly evolving ESG landscape, staying ahead of regulatory changes is essential for companies aiming to transform governance from mere compliance into a strategic asset. Building on our earlier overview of current ESG-Related EU Legislation, this article offers a high-level examination of some of the most significant ESG-related rules and regulations that will soon come into effect. From sustainability reporting to deforestation-free requirements, these frameworks shape compliance while offering opportunities for innovation and long-term value.

Regulation on Deforestation-Free Products (the EUDR)

The EU’s Regulation on Deforestation-Free Products (the EUDR), effective since June 2023, aims to prevent commodities linked to deforestation, such as cattle, soy, and coffee, from entering the EU market. Starting December 2025, large and medium companies will be required to submit a due diligence statement to prove compliance with the EUDR rules. Small and micro-enterprises follow in June 2026. The due diligence within the EUDR entails that companies that bring these commodities onto the EU market must collect geolocation data and documents proving that the products are so-called “deforestation-free”. Further, they must assess whether their products might, either directly or through their sources, raw materials, are linked to deforestation or forest degradation.

The Corporate Sustainability Due Diligence Directive (the CSDDD)

Effective as of July 25, 2024, this directive requires a large number of EU and non-EU companies to identify and address human rights and environmental risks across their operations and supply chains. Under the CSDDD, companies must adopt appropriate measures to identify and address adverse effects on human rights and environmental impacts and create climate transition plans. Compliance shall be effective since 2027 for the EU companies with over 5,000 employees and a turnover exceeding €1,500 million, with a phased implementation across sectors. The CSDDD will gradually extend to mid-sized companies (companies with over 3,000 employees) in 2028, and finally to about 6,000 smaller companies, falling under the CSDDD’s scope by 2029.

The Ecodesign for Sustainable Products Regulation (ESPR)

The European Commission’s Sustainable Products Initiative introduced the revised Ecodesign for Sustainable Products Regulation, aiming to achieve environmental benefits and make sustainable products the norm in the EU. Such environmental benefits will include reducing waste and extending product lifespans.

The ESPR’s goals are to be achieved by reducing pollution and the use of resources. The regulation sets standards for durability, repairability, and resource efficiency while reducing waste through measures like Digital Product Passports. The Digital Product Passport is a tool designed to improve product traceability and provide key information about the specific product such as its environmental footprint and supply chain data.

The EU’s Carbon Border Adjustment Mechanism (CBAM)

The EU’s Carbon Border Adjustment Mechanism (CBAM), now in a transitional phase until 2025, requires importers to report emissions for any carbon-intensive goods, such as cement, iron, steel, and fertilizers, entering the EU. This mechanism is the EU’s way of ensuring that imported carbon-intensive goods reflect a fair price, taking into account the consequences of their emissions. The CBAM is also aimed at encouraging cleaner production in non-EU countries and preventing “carbon leakage”. Carbon leakage occurs when EU companies shift carbon-intensive production to countries with less stringent environmental regulations or are replaced by carbon-heavy imports. As from 2026, the CBAM will fully apply.

ESG-related Legislation’s Impact on Companies

Business decisions and strategies will have to take into account ESG-related legislation with growing priority. Also, the governance of companies is affected by many of these rules. They establish standards for business ethics, anti-corruption measures, and whistleblower protections, fostering transparency and accountability.

Companies may consider ESG regulation as a burden. However, by following ESG governance obligations, companies can build a strong ethical culture, earning stakeholder trust and supporting long-term sustainability.

Ultimately, ESG requirements can transform governance from mere compliance into a strategic asset.

Feeling overwhelmed by the EU’s evolving ESG regulations and their impact on your business or curious to learn more about the ever-changing ESG landscape?

Our expert consultants are here to help you confidently navigate these complex rules. With our support, you won’t just be compliant – you’ll turn these regulations into an opportunity for competitive advantage.

Contact us to find out more:  info@rockwatercompany.com | info@rockwaterlegal.com