Key changes in the EU legislation and sustainability standards

Sustainability has become the central theme for businesses and regulators in the European Union and around the world. By March 2025, several new laws and initiatives have been adopted. They increase the requirements for environmental and social responsibility of companies. This is particularly relevant for companies in Eastern Europe and Ukraine. They are seeking integration into the European market. In this column, I have tried to review the changes in this area and their impact on our Ukrainian reality.

European Green Deal.

This EU strategy aims to achieve climate neutrality by 2050. It envisages a 55% reduction in emissions by 2030. The "Green Deal" includes reforms in energy, industry, transport and agriculture. Implementation of circular economy principles and biodiversity protection are also key aspects. This course lays the groundwork for regulations such as the Fit for 55 package. For Eastern European countries, including Ukraine, this is a challenge and an opportunity. Integration will be a chance to rebuild the economy on a sustainable basis. The government and businesses should work together. Environmental standards should promote development and attract investment. They should increase the efficiency of resources.

Corporate Sustainability Reporting Directive (CSRD)

The EU has introduced new requirements for mandatory non-financial reporting by companies. The CSRD (Corporate Sustainability Reporting Directive) provides for mandatory reporting from 2025 for large enterprises. From 2026, it will be extended to most small and medium enterprises (SMEs) and non-bank financial institutions. The Directive covers environmental, social, and governance (ESG) aspects. It applies not only to EU companies. Foreign companies are also subject to the requirements if they do business in the EU or are part of the supply chain of European firms.

For Ukrainian businesses, this means new challenges. When exporting to the EU, sustainability standards should be taken into account in reporting. Companies should ensure transparency of information about their environmental impact. Reporting should be aligned with the EU Taxonomy. This is important for investors who assess the environmental sustainability of a business. Ukraine is already taking steps to implement the CSRD. In October 2024, the government adopted a strategy. It is planned to harmonize legislation in 2024-2026. CSRD changes the approach to corporate transparency. Non-financial reporting is becoming a competitive advantage. It is even becoming a condition for access to markets and capital.

Carbon Border Adjustment Mechanism (CBAM)

CBAM is the new "carbon tax" at the EU border. It aims to prevent carbon leakage. The mechanism applies to imports of carbon-intensive goods. These include steel, iron, fertilizers, cement, aluminum, electricity and hydrogen. Importers must declare the CO₂ emissions embodied in these goods. From 2026, they will buy CBAM certificates for the corresponding amount of emissions. This equates to the carbon price between European and foreign producers. This approach forces exporters to carefully calculate their carbon footprint. For businesses in Eastern Europe and Ukraine, CBAM sends a double message. The risk of additional costs increases.

The competitiveness of energy-intensive industries may decline. In 2023, ~15-17% of Ukraine's exports to the EU were subject to the CBAM. This amounts to USD 3.6 billion, of which 93% are ferrous metallurgy products.

Without changes, Ukraine's export losses to the EU could reach USD 202 million in 2026. By 2030, they could rise to USD 1.4bn. Some products, such as cement and fertilizers, may disappear from the European market altogether. The projected losses for 2026-2030 are more than USD 4.6 billion. However, CBAM stimulates innovation. European businesses are interested in low-carbon suppliers. This opens up opportunities for cleaner technologies in Ukraine and neighboring countries. Importers are already demanding emissions data. Without such transparency, costs could rise. The CBAM increases emissions accounting requirements for EU suppliers. This is an incentive for the decarbonization of industry outside the Union. Ukraine is closely integrated with the EU market. Adapting to the CBAM is critical. Otherwise, revenues and jobs could be lost. This goes against the EU's strategic interest in supporting Ukraine.

EU Corporate Sustainability Due Diligence Directive  

In 2024, the EU agreed on the text of the Corporate Sustainability Due Diligence Directive (CSDDD or CS3D). It obliges large companies to conduct due diligence on human rights and environmental standards in all their operations.

The European Commission estimates that the CSDDD will cover ~6000 EU companies and about 900 foreign companies. These are mostly large players. But the effect of the directive will be felt by thousands of businesses around the world. They are partners of the reporting companies. Even if a Ukrainian or other Eastern European company is not directly required to report, it may be subject to an audit. Reporting companies will identify, prevent, and address negative human rights and environmental impacts in their value chains. Transition plans must be compatible with the Paris Agreement. EU countries are expected to incorporate these requirements into national legislation by July 2026.

Large European firms are already tightening control over their supply chains. For example, Germany's Supply Chain Due Diligence Act forces German businesses to demand guarantees of compliance with environmental and social standards from foreign suppliers. The CSDDD will make such requirements universal across the EU. For Eastern European businesses, this means adherence to the principles of sustainable development. This becomes a condition for cooperation with European customers. At the same time, the directive provides support to SMEs in adapting to the new rules. This is important because the burden will fall on them. The trend is transparent: ESG "due diligence" is becoming a legal requirement. Businesses should build risk management systems in their supply chains in advance.

UN Sustainable Development Goals (SDGs)

The international sustainable development agenda is defined by the 17 UN Sustainable Development Goals (SDGs). They are to be achieved by 2030. Ukraine has committed to implementing the SDGs in its national strategies. Many companies are guided by these goals in their operations. Almost all large Ukrainian enterprises take the SDGs into account. More than half of them openly report on their contribution to these goals. Responsible consumption and production are priorities for Ukrainian businesses. Quality education, ecosystem protection, and clean energy are also important. Reducing inequality, innovation, and infrastructure development are also important. In other Eastern European countries, the integration of the SDGs into business strategies is growing. This is supported by local networks of the UN Global Compact. At the global level, 2023 has become the ‘equator’ of SDG implementation. During the UN Summit, the lag in many goals was noted. Governments and businesses called for accelerated action by 2030. This draws the attention of investors and society to the role of companies in achieving the SDGs. Focusing on these goals helps structure business strategies. For example, reducing CO₂ emissions is a contribution to SDG 13, "Combat climate change". In Ukraine, the state of SDG implementation by businesses is assessed as moderate. In 2021, it scored 3.58 points out of 5 according to the EBA survey. Government policy is still poorly aligned with environmental goals. Therefore, many efforts to achieve the SDGs fall on the private sector.

TCFD and TNFD frameworks

Voluntary standards for reporting climate and natural risks are gaining importance. The TCFD (Task Force on Climate-related Financial Disclosures) is an international initiative with recommendations for disclosing climate risks to businesses. They are structured in four areas: governance, strategy, risk management, indicators and targets. By 2025, the TCFD has become a global standard. It is supported by more than 3,600 organizations. The G7 countries and the EU are integrating TCFD principles into mandatory reporting requirements. The UK has already introduced mandatory TCFD reporting for large companies. Investors expect businesses to understand climate risks. The TNFD (Task Force on Nature-related Financial Disclosures) is a new initiative for risks related to the natural environment. In September 2023, the final TNFD recommendations were published. More than 400 organizations are already planning to implement them. Although TNFD is still voluntary, paying attention to nature is becoming the next trend for regulators. Eastern European companies should adopt these approaches. This will help them assess the impact of their activities on the climate and ecosystems and report on it openly.

Which ESG Standards or Directives were abandoned in the US and EU in 2025 

In 2025, both the United States and the European Union saw significant changes in the way ESG standards and directives were applied. These changes have been driven by political, economic, and social factors, including business pressure and shifting political agendas.

United States

Withdrawal from the Paris Agreement: President Donald Trump has again withdrawn the US from the Paris Climate Agreement, significantly weakening federal commitments to combat climate change. 

NEPA regulations repealed — The Council on Environmental Quality (CEQ) repealed key provisions of the National Environmental Policy Act (NEPA), replacing them with general guidelines. This weakened the requirements for assessing the environmental impact of projects. 

Suspension of climate programs — The Office of Management and Budget (OMB) has temporarily frozen funding for several climate initiatives, including programs related to electric vehicle infrastructure.

Withdrawal from climate alliances — Major US banks and financial institutions have left international climate alliances, undermining their ESG commitments.

European Union 

Simplification of CSRD and CS3D: The European Commission has proposed to reduce the scope of the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CS3D). 
The changes are as follows:  
Companies with less than 1,000 employees are exempt from reporting. 
Due Diligence obligations now apply only to direct suppliers, not to the entire supply chain. 

Reduced administrative burden — as part of the Omnibus Directive, the EU has reduced the amount of reporting for companies by 25%, which should save about EUR 40 billion. 

Weakening of EU taxonomy standards — amendments to the taxonomy regulation aimed at simplifying disclosure requirements for financial institutions. 
Political pressure — The EU's decisions were prompted by fears of a decline in the competitiveness of companies amid more lenient ESG regulations in the US and Asia, as well as growing anti-ESG sentiment within the bloc.

In addition to these changes, it is important to emphasize the global trend towards a green economy and corporate social responsibility. Despite the cancellation of some standards, these areas continue to develop due to public demand and business awareness of their importance for sustainable development.

The key recommendations for Ukrainian companies in this context:

• Continue implementing ESG practices focusing on the most material aspects for business
• Improve internal ESG monitoring and reporting systems
• Adapt international standards to the Ukrainian context, taking into account local specifics
• Maintain an active dialogue with stakeholders on their expectations in the field of sustainable development
• Following these recommendations will help Ukrainian companies to remain competitive in international markets, despite a certain relaxation of regulatory requirements in the US and EU.

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