Sustainability, ESG, and corporate due diligence: where does the EU stand now, and what should companies prepare for?

In recent years, ESG (Environmental, Social, Governance) issues have become a key factor in the operations of European companies. The rapid expansion of sustainability regulations has posed a serious challenge for many companies: the administration required to comply, the due diligence of supply chains, and new reporting obligations have often placed an excessive burden on smaller companies.

However, by the end of 2025, an important turning point had been reached. The EU recognized that the pace of regulation had been too fast and that a significant number of companies would not be able to meet the previously set deadlines. As a result, several key sustainability requirements were postponed or made more flexible, giving companies more leeway to prepare.

The EU's 2025 shift in ESG regulation

One of the most important lessons of 2025 was that setting ambitious goals is not enough for a successful sustainability transition — implementation is also necessary. The EU's package of measures eased previous rules in several areas.

The introduction of sustainability screening obligations, for example, has been postponed on several points because most companies did not yet have the supplier data systems in place to meet the requirements. The reporting rules have also been modified: smaller companies will have more time to prepare, and the content of the reports will be simplified in the initial period. In addition, the EU has set a target of reducing the administrative burden on businesses by at least 30 percent by 2030, which clearly demonstrates the shift in regulatory direction.

What remains and what changes?

Although the pace of ESG reporting has slowed, larger companies will still be required to prepare EU sustainability reports. SMEs, on the other hand, will be given more time, but they should expect that the requirements will eventually apply to them as well. That is why it is worth starting now to develop data collection and documentation practices that will make compliance much easier later on.

Simplifications have also been introduced in the area of corporate due diligence (supply chain due diligence). The introduction of strict, detailed supplier checks has been broken down into several stages, with the strictest rules initially applying only to companies operating in the largest and most risky sectors. This gives small and medium-sized companies more time to prepare and gradually build the necessary processes. However, it is important to note that the EU's sustainability goals have not changed; the temporary slowdown is primarily technical in nature.

What does this mean for businesses in practice?

In the coming years, companies will have to navigate a less stringent but still clear regulatory path. For example, supply chain screening will not become an immediate, comprehensive obligation, but it is advisable to map out the most important environmental and social risks now so that companies can more easily prepare for future expectations.

The postponement of reporting provides a particularly good opportunity for companies to develop appropriate data management systems, processes, and internal policies. This will avoid the rushed and costly compliance projects that have put many companies in a difficult position in recent years. Reviewing internal operations—such as updating environmental, procurement, or employee equality policies—is also a step that is worth taking in a timely manner.

Investors and business partners continue to have a strong demand for sustainability data. In many cases, they request ESG information even if the company is not yet required to provide it by law. This means that being prepared already offers a concrete business advantage today—both in terms of financing and reputation.

Why is it worth addressing ESG now?

Although the EU has temporarily slowed down the pace of regulation, sustainability remains a key element of corporate strategy. Companies that start preparing in time are likely to find it easier to obtain financing, participate in tenders on better terms, and build more stable partnerships. From a long-term competitiveness perspective, there is no question that investing in sustainability pays off.

Summary

By the end of 2025, the EU regulatory environment will have become more transparent and flexible, which will benefit businesses. Sustainability requirements will remain in place, but companies will have more time and greater leeway to prepare. This period is ideal for companies to build their sustainability processes in a calm environment and lay the foundations for long-term, stable operations.