EU Sustainability: Legal Minefield Ahead for Corporations?

European Union proposed amendments to corporate sustainability report requirements are getting eyebrows from legal experts who argue the amendments will increase the threat of climate litigation for European companies. In February 2025, the European Commission published a proposal to simplify existing environmental law with a view to lowering regulatory quotas on business and allowing them to compete with their United States and Chinese equivalents. One of the most significant features of the proposed reform is the abolition of a obligatory step to impose on firms the use of certain emission reduction plans linked to the EU climate objectives. Under the new system, firms will be required to disclose whether they have a transition plan, without being obligated to execute or provide it. This shift, attorneys believe, can pressure firms to withstand lawsuits by environmentalists, shareholders, or residents if firms are perceived to lose climate responsibility even as they frighten the public in reports. The step of simplifying has been welcomed by some segments of the corporate world, particularly large corporations, who argue that current regulations are cumbersome and convoluted.

These companies anticipate simplified regulation to streamline the efficiency of operation and allow them to compete better at a global scale, particularly with companies in less stringent sustainability requirements countries. Others argue that relaxing these requirements will lower corporate responsibility and dilute the EU leadership position on climate matters. 31 law professors pointed out a total of this point in a collective letter published on May 9, 2025, contending that in the absence of legal mandate to implement climate plans, companies would be held more aggressively accountable by courts for disparities between green disclosures and actual business practices. The EU's green disclosure rules, launched as part of its broader Green Deal policy package, were originally meant to push firms towards cleaner behavior by disclosure and action on environmental, social, and governance (ESG) issues.

The suggested reforms, however, mirror more pressure on policymakers to balance ambitious climate goals with the economic pressures weighing on the European business. The new regulations would still compel companies to disclose their climate plan and strategy, but avoid judgment of implementation for themselves. The strategy, according to experts, generates legal uncertainty and could lead to litigation if stakeholders perceive that companies are not accountable in their actions or deceptive in their green efforts. Legal analysts warn that the reform will not reduce business burdens because it could increase the risk of litigation and uncertainty of compliance.

They opine that courts would regard publicly disclosed, non-binding plans as de facto undertakings where injury would ensue from inaction, especially where injury would be caused by failure to act. Such regulatory challenges could occur on environmental damage, risk to public health, or fiduciary duty breaches. Such a shift to non-enforceable commitments could also undermine national enforcement and reduce the incentives of firms to invest in long-term decarbonization. The European Commission stated that the planned amendments aim to enhance overall readability and usability of sustainability reporting obligations without undermining the EU's climate goals.

The legislative package must be agreed on through negotiations between EU member states and the European Parliament before adoption. In the meantime, all the actors from the corporate, legal, and environmental spaces watch anxiously to determine whether the final outcome will be supportive of the EU's sustainable finance system's integrity or dilute its effectiveness at delivering climate action.

Source/Credits: Reuters – "EU overhaul of sustainability law puts companies at risk of litigation, lawyers warn"
By Kate Abnett, Published on May 9, 2025