Introduction
Sustainability is no longer voluntary—it is becoming law. Across Europe, regulatory pressure is intensifying, and companies of all sizes are being drawn into a web of mandatory ESG compliance. Whether you're a local SME or a multinational enterprise, understanding sustainability laws for businesses is now essential.
Failure to comply with these emerging rules can result in financial penalties, reputational risk, and loss of access to funding. On the flip side, businesses that prepare now can gain a competitive edge, attract ESG-conscious investors, and build long-term resilience.
In this guide, we explain the key environmental laws for companies in the EU: what they are, who they affect, when they come into force, how much work it takes to comply, and how to start preparing now.
Why Sustainability Regulations Are Expanding
The world is facing a climate emergency. In response, governments, consumers, and investors are demanding action. The EU is leading the charge with legally binding climate goals under the European Green Deal, aiming to cut greenhouse gas emissions by 55% by 2030 and reach net-zero by 2050.
At the same time, investors are demanding transparency on ESG (Environmental, Social, Governance) risks. Large asset managers and banks are shifting capital toward sustainable companies, making ESG disclosures not just a compliance issue but a financial imperative. Businesses are being required to quantify and reduce their impact across operations and supply chains.
Key Sustainability Laws in the European Union
1. Corporate Sustainability Reporting Directive (CSRD)
What is it?
A mandatory ESG reporting law that replaces the Non-Financial Reporting Directive (NFRD). It requires large companies to disclose sustainability data based on European Sustainability Reporting Standards (ESRS).
Who must comply?
2024: Public-interest companies already covered by NFRD.
2025: All large EU companies (250+ employees, €40M+ turnover, or €20M+ balance sheet).
2026: Listed SMEs (with an option to defer to 2028).
2028: Large non-EU companies with €150M+ turnover in the EU.
What must be done?
Report annually on ESG risks, opportunities, and impacts.
Cover climate, biodiversity, social issues, governance, and double materiality.
Provide data that is independently audited.
How much work?
High. Requires cross-functional ESG data collection, reporting systems, internal training, and third-party assurance.
When?
Phased rollout: 2024–2028. CSRD official page.
2. Corporate Sustainability Due Diligence Directive (CSDDD)
What is it?
A law that makes large companies responsible for identifying and addressing human rights and environmental risks in their own operations and value chains.
Who must comply?
EU companies with 1,000+ employees and €450M+ turnover.
Non-EU companies with €450M+ turnover in the EU.
What must be done?
Create a due diligence policy.
Identify actual and potential adverse human rights and environmental impacts.
Integrate risk prevention and mitigation plans.
Establish grievance mechanisms and monitor effectiveness.
Directors must oversee policy implementation.
How much work?
Very high. Legal, procurement, and ESG teams must collaborate. Requires mapping complex supply chains and engaging with suppliers.
When?
Starting 2027 for the largest companies, scaling to more firms by 2029. CSDDD overview.
3. EU Taxonomy Regulation
What is it?
A classification system defining which business activities are "environmentally sustainable."
Who must comply?
Companies already under CSRD.
Financial market participants offering sustainable products.
What must be done?
Assess economic activities against six environmental objectives.
Determine if activities meet Technical Screening Criteria.
Disclose percentage of turnover, CapEx, and OpEx aligned with the Taxonomy.
How much work?
Medium to high. Requires detailed operational mapping and technical expertise.
When?
Already in effect for climate objectives; more sectors and objectives added annually. EU Taxonomy Regulation.
4. EU Emissions Trading System (ETS)
What is it?
A cap-and-trade system for industrial emissions. Companies buy/sell emissions allowances based on their CO2 output.
Who must comply?
Power generation, heavy industry, aviation (intra-EU), and shipping (from 2024).
What must be done?
Monitor and report emissions.
Purchase allowances for every tonne of CO2 emitted.
Submit annual verified emissions reports.
How much work?
High. Requires carbon accounting systems and regulatory strategy.
When?
Ongoing since 2005. Shipping phased in 2024–2026. EU ETS info.
5. Ecodesign for Sustainable Products Regulation (ESPR)
What is it?
A proposed law that sets sustainability requirements for products sold in the EU.
Who must comply?
Manufacturers, importers, and distributors of physical products in the EU.
What must be done?
Meet design standards for durability, repairability, recyclability.
Provide digital product passports for transparency.
Comply with product-specific rules.
How much work?
Medium to high. Affects product design, supply chains, and documentation.
When?
Final law expected 2024. First product groups (e.g., electronics, textiles) by 2026. ESPR overview.
Penalties and Consequences of Non-Compliance
Failing to comply with EU sustainability regulations can expose companies to serious financial, legal, and reputational risks. For example, under the Corporate Sustainability Due Diligence Directive (CSDDD), companies that fail to implement or properly execute due diligence procedures may face fines of up to 5% of their global annual turnover. These fines will be imposed by designated national supervisory authorities and could vary depending on the severity of the violation, the company’s size, and whether the breach was intentional or due to negligence.
The Corporate Sustainability Reporting Directive (CSRD) gives enforcement powers to national regulators. Non-compliance may result in public sanctions, financial penalties, or requirements to correct and re-audit disclosed ESG data. Because CSRD requires limited assurance (and eventually full assurance) of sustainability information, firms that report inaccurate or incomplete data could face additional audit-related scrutiny and reputational fallout.
Under the EU Emissions Trading System (ETS), the penalties are automatic and strict. If a company fails to surrender enough emission allowances to match its reported CO2 output, it will incur a penalty of €100 per excess tonne of CO2, in addition to having to purchase and surrender the missing allowances. These penalties are indexed to inflation and increase annually.
With the upcoming Eco-design for Sustainable Products Regulation (ESPR), while specific fines are not yet finalized, companies that fail to comply with new product design and transparency requirements could face market access restrictions. This means their products could be barred from being sold within the EU—a risk especially relevant to exporters and global manufacturers.
Looking ahead, we can expect stricter enforcement mechanisms and more cross-border coordination. The European Commission is also exploring centralized digital platforms for monitoring sustainability performance and compliance, particularly under the CSRD and ESPR. Additionally, regulators may introduce "naming and shaming" penalties where non-compliant companies are publicly listed or flagged in procurement and investment systems. This could have a chilling effect on public listings and B2B contracts if a company’s ESG standing is weak.
Ultimately, the era of soft pressure is ending. Penalties will not just be financial—they will increasingly affect reputation, access to capital, and even market eligibility.
How to Stay Compliant
To navigate the rapidly evolving sustainability landscape, your business should take proactive steps to stay compliant. Begin by conducting a comprehensive regulatory audit. This involves assessing your company’s size, sector, supply chain complexity, and market exposure to determine which EU laws apply. From there, establish clear ESG governance by appointing a dedicated sustainability lead or forming a cross-functional working group to oversee compliance and reporting.
Digital tools can accelerate this process. For example, the Regreener Sustainability Scan helps businesses quickly evaluate their sustainability exposure and compliance readiness. Leveraging such tools allows you to identify risks and opportunities with minimal resources.
It’s also crucial to work with legal advisors and ESG consultants who can provide tailored guidance. They can help you interpret complex regulatory texts, set up reporting frameworks, and prepare for external audits. Finally, stay informed. Subscribe to regulatory updates from trusted sources like EFRAG, GRI, and your national chamber of commerce to ensure you never miss critical changes that could impact your operations.
Upcoming Laws to Watch (2025–2027)
Looking ahead, several sustainability regulations are on the horizon. One of the most significant is the Green Claims Directive, which will require companies to back up environmental marketing claims with verified data. This is aimed at eliminating greenwashing and enhancing consumer trust.
The CSRD will also expand further. From 2026, listed SMEs will be required to begin ESG reporting, and voluntary reporting standards will be introduced for non-listed SMEs to encourage broader transparency. For companies preparing for CSRD, these timelines should shape their ESG planning over the next two years.
The CSDDD, expected to be finalized in 2024, will gradually come into force starting in 2027. Companies need to begin mapping their supply chains and evaluating human rights and environmental risks now to avoid scrambling as the deadline approaches.
Additionally, the ESPR will start targeting specific product categories such as batteries, textiles, and furniture between 2026 and 2027. If your company is involved in manufacturing or importing these products, it is essential to begin reviewing product design, sourcing practices, and lifecycle documentation.
Staying ahead of these developments not only ensures compliance but positions your business as a leader in responsible, future-proof operations.
Green Claims Directive: Will require companies to prove and substantiate eco-marketing claims.
CSRD SME expansion: From 2026, listed SMEs must report. Voluntary standards for other SMEs.
CSDDD rollout: Finalization expected in 2024; compliance starts in 2027, depending on company size.
New ESPR product groups: Batteries, textiles, and furniture are expected to be targeted first.
Conclusion
The EU is rewriting the rules of corporate sustainability. If your company operates in Europe or does business with EU clients, you are likely affected by these sweeping changes. Understanding the laws—and acting early—can help you avoid penalties, strengthen your reputation, and build a future-ready business.
Don’t wait until the deadline. Start with a free sustainability scan to find out what applies to you and what to do next.
