Sustainability Takeaways in EU Regulatory & Competition: 2024 Year in Review

Last year, we saw significant development in the EU ESG regulatory landscape, including a continued rollout of sustainability frameworks aimed at advancing the European Green Deal. Effective 1 December 2024, the European Parliament and the European Council appointed the new European Commission, with a mandate running until 31 October 2029. As we look to 2025 and beyond, we anticipate significant developments in the EU sustainability space, with the new Commission balancing its EU competitiveness agenda and an ambition to uphold the goals set out in the European Green Deal.

1. Corporate Sustainability

Continued Development of Regulatory Framework and Potential “Omnibus” Initiative

European Commission Suggests Potential Consolidation of ESG Reporting Frameworks

European Commission | November 2024

In November 2024, European Commission President Ursula von der Leyen indicated that certain existing and future EU ESG reporting obligations may be consolidated as part of an “omnibus” initiative, in a bid to streamline the extent of the reporting requirements that companies face in the EU. In particular, von der Leyen stated that the EU is looking at potentially combining the “often overlapping” reporting requirements in the triangle of corporate sustainability regulations, consisting of the Corporate Sustainability Reporting Directive (CSRD), the EU Taxonomy Regulation, and the Corporate Sustainability Due Diligence Directive (CSDDD), in order to “reduce bureaucracy”.

Von der Leyen’s announcement followed a meeting in November of EU heads of state and government in Budapest, during which they issued a joint declaration on “The New European Competitiveness Deal”.

Although von der Leyen’s remarks suggest that the proposed consolidation initiative would focus only on streamlining rather than “changing the content of the laws”, significant uncertainty persists regarding the impact on these corporate sustainability frameworks. The Commission is expected to make a proposal regarding the “omnibus simplification package” in early 2025.

See this Latham article for more detail.

Corporate Sustainability Due Diligence Rules Adopted

European Commission | July 2024

After a turbulent and protracted legislative process in the European Parliament and the European Council, the final text of the CSDDD was published in the Official Journal of the European Union on 5 July 2024.

The CSDDD will introduce a due diligence duty for large companies to identify and address adverse human rights and environmental impacts in their own operations, those of their subsidiaries, and in their “chains of activities”. The Directive will also introduce specific requirements regarding the adoption and implementation of transition plans for climate change mitigation.

The CSDDD applies to a broad scope of large EU companies, as well as non-EU companies with significant EU operations, and will require in-scope companies to integrate environmental and human rights due diligence into policies, assess impacts, and establish complaint mechanisms. The CSDDD will also introduce related reporting requirements in relation to due diligence, which may be affected by the “omnibus” initiative from the new European Commission (see above).

Member States must transpose the CSDDD into national law by 2026, with phased-in compliance based on company size and turnover beginning for the largest in-scope companies in 2027.

Notably, the CSDDD’s impact will extend beyond directly-in-scope companies, affecting global supply chains and increasing scrutiny on non-EU companies with significant EU business. Companies are advised to start preparing for the CSDDD by reviewing current due diligence practices, engaging with stakeholders, and mapping their value chains.

See this Latham article for more detail.

Preparation for Sustainability Reporting With Guidance From the European Commission and EFRAG

European Commission and EFRAG | 2024

Last year, certain entities began preparing for mandatory sustainability reporting in accordance with the CSRD. The first CSRD sustainability reports are expected to be published in the second and third quarter of 2025 and will cover ESG information with respect to the financial year 2024.

In this context, the European Commission and the European Financial Reporting Advisory Group (EFRAG), the association appointed as the technical advisor to the Commission on the European Sustainability Reporting Standards (ESRS), have been developing guidance regarding reporting in accordance with the CSRD and the ESRS. The ESRS sets out the specific reporting requirements for entities that report on sustainability-related impacts, risks, and opportunities under the CSRD.

On 31 May 2024, EFRAG published the first three implementation guidance (IG) documents aimed at supporting entities that are preparing sustainability statements in accordance with the ESRS. The IG documents address: (i) the materiality assessment; (ii) the value chain; and (iii) a detailed list of ESRS datapoints. In November 2024, EFRAG published a working draft of a fourth IG document covering transition plan disclosures.

On 7 August 2024, the Commission published FAQs on the interpretation of certain provisions under the CSRD, addressing questions regarding scope and application dates, exemption rules, and third-party assurance of sustainability reporting.

On 26 September 2024, the Commission opened infringement procedures against several Member States for not fully or properly transposing CSRD into national laws. This delay, together with the comments regarding a potential proposal for an omnibus “initiative” to simplify reporting rules, creates significant uncertainty for entities that are preparing for CSRD compliance in 2025 and beyond.

See this Latham article on top 10 ESG trends for 2025 for more detail on our expectations regarding mandatory ESG reporting.

2. Competition

A New Commissioner With “Green” Credentials and Potential State Aid Framework Updates

Appointment of New Commissioner for Competition and EVP for Clean, Just, and Competitive Transition

European Commission | December 2024

On 1 December 2024, Teresa Ribera assumed the office of the new EU Competition Commissioner and Executive Vice-President for a Clean, Just, and Competitive Transition. Having played important roles in the negotiation of the Paris Agreement and as the EU’s chief negotiator at the COP28 UN Climate Change Conference, the former Spanish Minister for Ecological Transition brings strong sustainability credentials to her position. Her tenure is expected to enhance the integration of sustainability considerations into EU State aid and competition enforcement.

Particularly, as part of the EU’s competitiveness agenda, Ribera has indicated plans to create a new State aid framework under the Clean Industrial Deal. The Draghi report on the Future of European Competitiveness addresses concerns regarding the EU’s reliance on gas imports and market vulnerabilities. In this context, Ribera has highlighted that “decarbonisation and competitiveness are inseparable objectives” and indicated that the new State aid framework will be aimed at expediting the rollout of renewable energy, deploying industrial decarbonisation, and increasing cleantech manufacturing capacities.

As the Executive Vice-President for a Clean, Just, and Competitive Transition, Ribera will also be responsible for steering the work on EU investment and financing for a just and social transition, notably through the Social Climate Fund and the Just Transition Fund.

Consultation on New Procedure Allowing Challenges to State Aid Decisions Based on EU Environmental Law

European Commission | July – September 2024

On 1 July 2024, the European Commission opened a targeted consultation seeking feedback on a proposed new procedure that would give the public access to judicial procedures to challenge State aid measures that allegedly contravene EU environmental law.

The consultation came as a response to the 2021 conclusions of the Aarhus Convention Compliance Committee. The Compliance Committee determined that the EU is in breach of the Aarhus Convention, since the public is unable to contest State aid decisions adopted under Article 108(2) TFEU, if such decisions violate EU environmental law.

Under the proposed new procedure, eligible members of the public, including environmental non-governmental organisations, would be able to request an internal review by the Commission of a State aid decision that is suspected of violating EU environmental law. These eligible applicants would also have the right to seek redress in the EU courts.

During the targeted consultation, which closed on 6 September 2024, the Commission gathered input from the business community and public authorities. The Commission plans to release a Commission Staff Working Document in the second quarter of 2025 that will evaluate the initiative’s scope, content, and potential impacts, and summarise the consultation’s results.

3. Consumer Protection

Greenwashing Investigations and New Directives to Further Develop Anti-Greenwashing Framework

Greenwashing Investigations and Litigation Based on Consumer Protection Frameworks

European Commission | March 2024

Last year featured a significant number of greenwashing investigations and cases in the EU consumer protection space. Member State consumer protection authorities have been closely scrutinising companies’ statements regarding their sustainable practices and performance across various sectors, including the fashion, beverage, and automobiles industries.

High-profile greenwashing investigations are increasingly being coordinated at the EU level by the European Commission and the EU Consumer Protection Cooperation Network (CPC Network), which consists of Member State consumer protection authorities. Notably, in April 2024, the Commission and the CPC Network announced that they initiated action against 20 major airlines for greenwashing practices related to claims made by airlines that CO2 emissions caused by flights could be offset.

In 2024, greenwashing cases were typically brought based on the general consumer protection framework from the Unfair Commercial Practices Directive (UCPD). The EU is further enhancing anti-greenwashing protection for consumers, with the adoption of the Empowering Consumers for the Green Transition Directive and the potential adoption of the Green Claims Directive (see below).

Given the significant enforcement powers and fines for violations of consumer law, which can be linked to annual turnover, and with mandatory sustainability reporting under the CSRD, we expect that mitigating greenwashing risks will be an area of continued focus for businesses in 2025.

Directive on Empowering Consumers for the Green Transition Enters Into Force

European Commission | March 2024

On 26 March 2024, the Directive on Empowering Consumers for the Green Transition (ECGT) entered into force. The ECGT is aimed at preventing misleading sustainability claims and protecting consumers against greenwashing, including through sustainability labels.

The ECGT amends the UCPD and the Consumer Rights Directive. The Directive will complement and be further expanded by the Green Claims Directive, which is still progressing through the EU legislative process (see below).

The ECGT expands the list of prohibited commercial practices under the UCPD to include specific prohibitions regarding environmental claims (including regarding climate neutrality and net zero) and sustainability labels. The ECGT further adds rules prohibiting misleading information on a product’s circularity or environmental and social characteristics.

Member States are required to transpose the ECGT by 27 March 2026 and apply its rules starting from 27 September 2026.

European Council Adopts Position on Green Claims Directive

European Council | June 2024

On 17 June 2024, the European Council adopted its position on the Directive on Substantiation and Communication of Explicit Environmental Claims (Green Claims Directive). The Directive was proposed by the European Commission in March 2023 and is aimed at preventing companies from making misleading claims about the environmental performance of their goods and services.

The proposed Directive is part of a broader package of consumer-oriented environmental proposals, including the Ecodesign Regulation (see below in section 4) and the updates to the UCPD and Consumer Rights Directive by the ECGT (discussed above).

The Green Claims Directive would introduce minimum requirements for the substantiation, communication, and ex-ante verification of environmental and climate-related claims. It would also create specific rules regarding public and private environmental labelling schemes. Under the Green Claims Directive, companies would be required to use clear criteria and the latest scientific evidence to substantiate their environmental and climate-related claims and labels.

The Council’s position forms the basis for legislative negotiations with the European Parliament on the Directive proposal, which are expected to continue in 2025.

4. Environmental Law

Expansion of Green Deal Framework Continues (With Delay)

European Union Postpones Application of EU Deforestation Regulation

European Union | October – December 2024

On 19 December 2024, the European Council and the European Parliament formally adopted an amendment to the European Union Deforestation Regulation (EUDR) to delay its application by one year. The EUDR is part of the European Green Deal and will introduce supply chain due diligence requirements on operators and traders of products linked to deforestation and forest degradation.

The EUDR requirements were initially set to apply from 30 December 2024. In response to concerns from Member States, global partners, and businesses calling for additional time to prepare for implementation, the European Commission proposed a one-year postponement of the EUDR. The effective date is now delayed to 30 December 2025 for most operators and traders, and 30 June 2026 for micro- and small undertakings.

Concomitantly with the October 2024 amendment proposal, the Commission released guidance and FAQs to support the preparation for implementation of the EUDR. In the context of the bid to ease burdens on businesses, the new Commission is expected to publish an updated version of the EUDR guidance and FAQs in 2025 to provide further clarifications and make simplifications to reduce administrative requirements.

See this Latham article for more detail.

Ecodesign for Sustainable Products Regulation Enters Into Force

European Union | July 2024

On 18 July 2024, the Ecodesign for Sustainable Products Regulation (ESPR) entered into force. The ESPR replaces the existing Ecodesign Directive, expanding its scope to cover all physical goods, including components and intermediate products, with limited exceptions such as food and medicinal products. The ESPR also introduces new requirements for circularity, durability, repairability, and recyclability.

The ESPR aims to improve the circularity, energy performance, and other environmental sustainability aspects of products in the EU market. It is a framework legislation enabling the gradual adoption of product-specific measures. The first ESPR measures regarding high-impact items such as textiles and iron and steel products will be adopted in 2026.

The ESPR will also introduce a requirement that products have a Digital Product Passport (DPP), enhancing transparency and traceability. The DPP will need to include information on sustainability, environmental impact, circularity, substances of concern, value retention, and recycling.

See this Latham article for more detail.

EU Adopts Nature Restoration Law

European Union | June 2024

On 24 June 2024, the EU adopted the Regulation on Nature Regulation (Nature Restoration Law). The regulation creates a framework for Member States to implement measures to restore at least 20% of the EU’s land and sea areas by 2030, and all ecosystems “in need of restoration” by 2050.

The Nature Restoration Law is part of the EU’s biodiversity strategy for 2030 and the European Green Deal. Its objectives include the long-term recovery of nature, climate mitigation, food security, and meeting international commitments like the Kunming-Montreal Global Biodiversity Framework.

Member States are required to implement effective restoration measures, with specific targets for habitats in poor condition. Member States must submit National Restoration Plans detailing how they will meet the law’s targets within two years from its entry into force.

The Nature Restoration Law reflects a broader global focus on biodiversity and ecosystem integrity, which is expected to continue throughout 2025.

See this Latham article for more detail.

Latham & Watkins will continue to monitor developments in the EU sustainability regulatory space in 2025.

The authors would like to thank Toon Dictus for his contribution to this newsletter.