The financing of the EU's tasks must be secured in the long term and requires comprehensive budget planning. The basis of this budget planning is the so-called "Multiannual Financial Framework“, and the next one must be adopted unanimously by the Member States for the years 2028 to 2034 on a proposal from the European Commission with the consent of the European Parliament. The Commission presented its draft on July 16, 2025, and it is quite ambitious. But what exactly is the "Multiannual Financial Framework"? Which changes does it make compared to the previous funding period? What happens next?

What is the "Multiannual Financial Framework"?

Based on Art. 312 of the Treaty on the Functioning of the European Union (TFEU), the "Multiannual Financial Framework" (MFF), which is the responsibility of the European Commission, covers the EU's budget planning for at least five – usually seven – years. It determines the financial scope of the annual EU budget by setting binding ceilings. The focus is always on promoting European cooperation, particularly in terms of growth and competitiveness. Long-term budget planning enables investment projects to be aligned over several years and thus designed more efficiently. Variable elements of the MFF allow a flexible response to crises and emergencies such as natural disasters. Moreover, it enables financial resources to be deployed quickly and precisely.

In addition to the MFF, the EU also has subsidiary budgets. The most prominent example of this is NextGenerationEU (NGEU). This is a temporary recovery program that was launched in 2020 to deal with the economic and social impact of the COVID-19 pandemic. With a volume of more than EUR 800 billion, NGEU aims to finance economic recovery in the EU and promote investment.

There are also other budgets outside the traditional financial framework, such as the European Peace Facility (EFF). The facility was set up for the period 2021-2027 with a volume of EUR 5.69 billion and serves to support countries affected by military conflicts.

What are the main innovations of the MFF 2028-2034?

A – Increasing the budget and new sources of revenue

The Commission wants to significantly increase the budget. The current MFF 2021-2027 has a total volume of around EUR 1,211 billion, which corresponds to around 1.11% of the gross national income (GNI) of the EU-27. In addition, there are funds from the "Next Generation EU" reconstruction program amounting to around EUR 800 billion.

The current EU budget, including NGEU funds, therefore amounts to around EUR 285 billion per year. In comparison, the German federal budget alone is already around EUR 450 billion, i. e. almost twice as much.

The European Commission considers the current budget volume for the future MFF 2028-2034 to be insufficient, particularly regarding the need to overcome global instabilities and to finance climate protection and biodiversity. The European Commission wants to invest EUR 2,000 billion to future-proof the EU. "The next Multiannual Financial Framework is the most ambitious we have ever proposed. It is more strategic, more flexible, more transparent", says European Commission President Ursula von der Leyen. But where will this funding come from?

To keep the Member States' national contributions stable, the European Commission is trying to tap into new own resources. At present, the fulfilment of EU tasks is largely financed by contributions from the Member States, and they would rather "transfer less to Brussels" than more. On the one hand, ecological levies are proposed, i. e. revenues from the EU Emissions Trading System (ETS) and the Carbon Border Adjustment Mechanism (CBAM) are to be used permanently as own resources, with 30 % of ETS revenues flowing into the EU budget in addition to the proceeds from the CBAM. On the other hand, revenue is to be generated from the taxation of multinational corporations: With the planned taxation of corporate profits in the EU through the BEFIT (Business in Europe: Framework for Income Taxation) instrument as well as revenue from the OECD-driven Pillar One of the global minimum tax system.

B – Changes

The heart of the new MFF are the national and regional partnership plans, which shall form the basis for investments and reforms. The European Commission would like to invest EUR 865 billion just for this.

In addition, the European Commission intends to modernize the Common Agricultural Policy (CAP) and adapt it to new ecological and social requirements. A further EUR 300 billion has been earmarked as income support for farmers, which corresponds to double the amount of the agricultural reserve compared to the previous MFF.

In addition, programmes to reduce economic and territorial disparities between regions should be more efficient and customs and excise duties should be optimized.

Another important proposal is the establishment of a European Competitiveness Fund with almost EUR 410 billion. This fund bundles up to 14 previously separate programmes, including innovation, digitalization, climate protection, health and defence, into a single, thematically focused fund. The aim is to promote strategic investments in key technologies, drive forward industrial decarbonization and strengthen Europe's global competitiveness.

What criticism is there of the planned changes to the MFF 2028-2034?

The European Commission's draft has not met with a positive response everywhere. The European Parliament has already rejected the European Competitiveness Fund proposed by the European Commission as inadequate. Large funds are considered unsuitable for guaranteeing parliamentary control. It also criticizes the model of a national plan per member state ("single plan"), as is practiced with the Recovery and Resilience Facility. The European Parliament will not accept any restriction of its duty of oversight and democratic control over EU funds. Instead, it is calling for a differentiated structure with strong parliamentary control and the involvement of regional and local authorities.

Several member states also reject a significant increase in the EU budget. If this were to be accompanied by an increase in the expenditure ceiling above the current level of 1 % of GNI, which in turn is criticized by the European Parliament and the European Commission. "Frugal" states such as Germany have already spoken out against an increase in the EU budget. France has even announced its intention to cut payments to the EU budget in 2026.

Many member states are sceptical about new, mandatory own resources and additional financial burdens that go beyond management or structural reforms. Regardless of the Commission's proposals for new financing instruments, differences remain, for example regarding the integration of new thematic areas or centralized control.

How will defence be financed?

There is overwhelming consensus on increasing the defence budget. The financing of defence is based on the European Defence Fund (EDF). This is the central EU instrument for promoting research, development and joint procurement of modern defence technologies. For the current period 2021-2027, the fund has a budget of EUR 7.3 billion at its disposal. Given the current geopolitical situation, the European Commission has invested EUR 910 million in strengthening the innovative and interoperable defence industry in Europe this year. The European Commission's proposal provides for a special mechanism with a financial impact of almost EUR 400 billion to deal with serious crises. EUR 131 billion is to be invested from the Competitiveness Fund in the areas of defence and space. A further EUR 100 billion is earmarked for Ukraine's recovery and resilience. 

In addition to the EDF, the European Commission is planning a comprehensive rearmament as part of its "ReArm Europe" initiative. To this end, it plans to borrow EUR 150 billion through capital market bonds. This should enable rapid and targeted investments without placing an undue burden on national budgets. Over the next four years, around EUR 800 billion will be mobilized, a large part of which is to be covered by an increase in national defence spending by the member states of 1.5 % of GDP.

Further considerations concern the establishment of a so-called "rearmament bank", which is supported by EU member states as well as foreign partners such as the USA and the UK, to simplify and bundle financing for defence technologies. This bank would issue triple-A bonds backed by the shareholder states and thus mobilize additional funds without increasing the debt levels of the member states.

What happens next?

The proposal for the 2028-2034 MFF submitted by the European Commission on 16 July 2025 will be discussed over the next two years. The new MFF must be adopted unanimously in the Council and by simple majority in the European Parliament.

How the European Commission will manage the balancing act between future-orientated policy with new tasks and expenditure desired by the European Parliament and the savings wishes of the Member States cannot be predicted. So far, negotiations have been characterised by the paradox that every Member State wants to get more out than it pays in. Furthermore, in the EU as elsewhere, regrettably, different points are being linked together: For example, the approval of EU sanctions with commitments in favour of individual EU Member States, as in the recent case of Slovakia's delayed approval of the 18th sanctions package against Russia. In the next two years, there will certainly be tough disputes over the proposal. Besides, the MFF 2028-2034 will certainly look different from what was proposed.

Gábor Báthory
Prof. Dr. Rainer Bierwagen
Christian Hipp
Dr. Dietmar O. Reich

Sources

Proposal of the European Commission

https://commission.europa.eu/strategy-and-policy/eu-budget/long-term-eu-budget/eu-budget-2028-2034_en

Parliament's priorities for the Multiannual Financial Framework from 2028 onwards | News | European Parliament

Budget proposal "simply not enough", say MEPs | News | European Parliament

Example comments from Baden-Württemberg

https://stm.baden-wuerttemberg.de/de/service/presse/pressemitteilung/pid/vorschlag-der-eu-kommission-fuer-mehrjaehrigen-finanzrahmen 

What the Sezioni Unite decided

Why this matters

1. Precedent for strategic litigation – The ruling is Italy’s first high-level endorsement of climate tort claims against a fossil-fuel producer, echoing landmark cases like Urgenda(NL) and Milieudefensie v. Shell (NL), but within a civil-law jurisdiction.
2. Expands the net of liability – By recognising claims against shareholders, the Court broadens potential defendants to include investors with controlling stakes, strengthening the hand of activists and minority shareholders alike.
3. Aligns with EU sustainability agenda – The reasoning dovetails with the forthcoming Corporate Sustainability Due Diligence Directive (CS3D) and the revised EU Emissions Trading Scheme, adding judicial pressure to legislative and market forces.
4. Heightens directors’ duties – Executives now face clearer litigation exposure if corporate transition plans fall short of the best available climate science, raising the bar for disclosure and risk management.

Action points for boards, banks, and investors

• Stress-test transition plans against a 1.5 °C pathway; ensure emission-reduction targets are credible, time-bound and science-aligned.
• Map group-wide exposure — include subsidiaries and joint ventures — and embed climate clauses in intragroup governance documents.
• Document stewardship by significant shareholders (not only state entities) to demonstrate active oversight of portfolio companies’ climate performance.
• Update litigation risk registers to reflect potential tort claims under ECHR-based arguments, not just statutory environmental breaches.
• Banks and investors to assess direct and indirect liability from financing hard-to-abate and carbon-intensive sectors and to include related risk in PD, LGD and EV/NPV considerations.

Looking ahead

The case now returns to the Rome Civil Court for a merits trial that could impose operational emissions caps on ENI or mandate shareholder-driven policy shifts. Regardless of the outcome, the Supreme Court has already reshaped Italy’s climate-litigation landscape: corporations can no longer rely on jurisdictional or political-question defences to sidestep ambitious climate suits. Expect a surge in filings targeting high-emitters (including companies active in hard-to-abate and carbon-intensive sectors), shareholders and potentially lenders, heightened investor engagement, and closer integration between EU regulatory reforms and domestic judicial enforcement.

Article by Riccardo Sallustio

French Article available here 

welcome to the June issue of ADVANT Beiten's International Briefing.

Germany remains one of the world’s most attractive destinations for foreign direct investments. This reputation is well-deserved, as the country offers a stable legal environment, a highly skilled workforce, and a dynamic industrial landscape, all of which create a robust foundation for successful business ventures. In ADVANT Beiten's newly released guide "Investing in Germany" our experts provide a comprehensive overview of the legal framework for foreign investments in Germany - practical, understandable and with extensive experience in the field of foreign direct investments.

This year our Beijing office proudly celebrates its 30^th anniversary. We are delighted to share with you an insightful interview with our Beijing team of Susanne Rademacher, Dr Jenna Wang-Metzner, and Lelu Li, highlighting their dedication and three decades expertise in the field of the inbound and outbound investments in China.

In this issue we will also highlight interesting developments in the European and German legal landscape, invite you to meet us at international events, and tell you about our recent deals.

You can find the newsletter by clicking here.

Kind regards,

Dr Barbara Mayer
Prof. Dr Hans-Josef Vogel
Dr Christian von Wistinghausen
Moritz Kopp

One element of this package of measures is the Action Plan for Affordable Energy. It presents a roadmap for affordable and secure energy supply. 

The following text gives you an overview of the key points of this roadmap.

I. The EU action plans

Energy prices in the EU have risen dramatically in recent years, affecting households, companies and industry alike. Energy-intensive industries in particular are facing rising costs that jeopardise their competitiveness on the global market. At the same time, geopolitical uncertainties and dependence on fossil fuel imports are exacerbating the situation.

At the end of January 2025, the European Commission already described and announced measures in its Competitiveness Compass for the EU, based on the Draghi Report, that are intended to accelerate the transformation of the EU and increase its competitiveness. 

The Green Industrial Deal has now been published as part of this Compass. In this context, the EU Commission presents, among other things, the Action Plan for Affordable Energy.

The aim of this Plan is to reduce energy costs in the short term, accelerate structural reforms and create a stable, climate-friendly and competitive energy system within the EU in the long term.

II. High energy costs in the EU

The Commission lists several factors that are responsible for the high energy costs. On the one hand, it mentions the heavy dependence on imported fossil fuels, especially gas. High price fluctuations on the global markets and geopolitical tensions are inflating costs. On the other hand, the report identifies a disadvantage in the still inadequate integration of the European electricity grid, which leads to grid bottlenecks and inefficiencies and therefore to higher costs. High taxes, grid fees and levies in the individual Member States are also cited as major factors causing high and rising energy prices.

III. The four pillars of the Action Plan

In order to reduce these high energy costs quickly and systematically and to make the energy system fit for the future, the Action Plan presents four pillars containing a total of eight actions: Lowering energy costs (Pillar 1), completing the Energy Union (Pillar 2), attracting investments (Pillar 3) and being ready for potential energy crises (Pillar 4).

Pillar 1: Lowering energy costs

In Pillar 1, the EU Commission defines four actions to lower energy costs.

Action 1: Make electricity bills more affordable

As a first step, network charges will be reduced and taxes and levies lowered. The Commission intends to introduce new pricing structures for this purpose, designed specifically to promote flexible grid use and grid stability. The Commission also wants to issue recommendations to the Member States on reducing taxes and levies, with the costs to be shifted to the national budgets. In addition, switching energy suppliers will be made easier for consumers, and energy communities will be promoted.

Action 2: Bring down the cost of electricity supply

Besides the above, the Commission plans to develop legal guidelines for power purchase agreements (PPAs) and contracts for difference (CfDs) to promote more favourable procurement models and the integration of renewable energies also for those consumers who have so far had little access to this type of electricity supply. Regulatory obstacles will be removed by the Member States and certain instruments will be introduced to minimise risk. 

The Commission also intends to make legislative proposals to further shorten authorisation procedures for grids, storage and renewable energies. Member States will be supported in their efforts to improve the human and financial resources of the authorisation authorities. This should reduce approval periods to less than six months for simpler projects, such as repowering projects in acceleration areas.

The presentation of a European Grid Package, which will build on the Network Action Plan already in place since 2023, is also aimed at accelerating the modernisation and digitalisation of the networks in Europe. System flexibility is going to be increased through the further expansion of storage capacity and also through demand response. To this end, the Member States should implement the EU regulations on market access more quickly and offer better incentives to make flexibility more attractive for the individual stakeholders.

Action 3: Ensure well-functioning gas markets

The competitiveness of the gas markets will be improved through fair prices. It is planned that a Gas Market Task Force will thoroughly scrutinise the market and take steps to ensure the proper functioning of the market and prevent market distortions. A broad stakeholder consultation will be launched in the areas of regulatory oversight, alignment and strengthening of energy and financial market rules, reduction of administrative burden for companies trading in energy financial markets and the introduction of a common harmonised database. The work of the task force is expected to be completed by the 4th quarter of 2025 with the delivery of a recommendation.

Action 4: Energy efficiency - delivering energy savings

Another aspect of lowering energy costs is to reduce energy consumption, i.e. improve energy efficiency. Access to energy efficiency services will be facilitated and financial incentives increased, both for companies and consumers. Especially the latter will be offered easier access to energy-efficient products and products with a longer service life. To this end, labelling and ecodesign regulations will be adapted. 

Pillar 2: CompletIng the Energy Union

The Commission addresses the completion of the Energy Union in Pillar 2 of the Action Plan - which is also Action 5. Meeting this goal requires long-term structural measures. The Commission proposes, among other things, the introduction of an Energy Union Task Force for improved coordination between the Member States, the revision of the existing Energy Union Governance Regulations and the introduction of a Heating and Cooling Strategy. An investment strategy for clean energy and a strategic roadmap for digitalisation and AI in the energy sector will also be presented.

Pillar 3: Attracting investments

In Pillar 3, the Commission deals with the financing of the energy transition. Securing a stable and affordable energy supply for European industry in the long term will be made easier.

In Action 6, the Action Plan therefore provides for the creation of a favourable investment climate through a tripartite contract for affordable energy between energy producers, public sector and industry. The European Investment Bank (EIB), the Commission and the Member States are expected to support the parties involved. The aim is to provide predictability and scalability. 

Pillar 4: Being ready for potential energy crises 

Pillar 4 provides the Member States with appropriate instruments to enhance resilience of the energy market during future energy crises and to strengthen security of supply.

In Action 7, the Commission therefore announces a proposal to revise the current EU legal framework for the security of energy supply. The proposal will help to stabilise prices by drawing on the experience of the current energy crisis. This is aimed at ensuring better availability of energy at all times.

Action 8 guides the Member States on incentives through an appropriate remuneration system to reduce demand at peak times. Grid operators are encouraged to implement measures to reduce energy consumption at certain times. This is intended to keep the energy bill down and to reduce price volatility. Action 8 aims at stabilising the energy market and improving price control. In cases where a grid bottleneck or overload severely impedes the flow of energy, close cooperation between the transmission system operators (TSOs) and the national authorities will continue. Overall, cross-border electricity trading is to be maximised to mitigate local price peaks and guarantee the supply of energy.

IV. Conclusion and outlook

The measures presented in the Action Plan for Affordable Energy are numerous and range from specific adjustments to existing regulations all the way to reports by task forces yet to be established based on which specific measures will have to be developed. The Action Plan’s aim to reduce energy prices in the EU and thus strengthen competitiveness is certainly equally important and valid for all Member States, consumers and industry. It remains to be seen exactly which measures will be implemented and how they can and must be integrated into the German legal framework. The timelines for the implementation of the measures listed in the Action Plan range from ‘immediately‘, through the first calendar quarter of 2025, to the beginning of 2026. 

We will monitor the developments and the impact on individual market participants, analyse them and keep you informed.

Peter Meisenbacher
Dr Malaika Ahlers LL.M.

Sebastian Berg, Anton Buro und Dr Florian Böhm from our Energy team will also be happy to answer any questions you may have on energy law-related issues.

The first omnibus package contains the following steps:

• Make sustainability reporting more accessible and efficient  (relates to the Corporate Sustainability Reporting Directive – CSRD, more on it below)
• Simplify due diligence to support responsible business practices  (betrifft die Corporate Sustainability Due Diligence Directive – CSDDD bzw. CS3D, more on it below)
• Strengthen the carbon border adjustment mechanism for a fairer trade 
• Unlock opportunities in European investment programmes

For details see: Commission proposes to cut red tape and simplify business environment - European Commission

The individual steps are described more precisely on the linked pages. Regarding the first two steps, the EU Commission emphasises the following:

„Making sustainability reporting more accessible and efficient 

Specifically, the main changes in the area of sustainability reporting (CSRD and EU Taxonomy) will:

• Remove around 80% of companies from the scope of CSRD, focusing the sustainability reporting obligations on the largest companies which are more likely to have the biggest impacts on people and the environment;
• Ensure that sustainability reporting requirements on large companies do not burden smaller companies in their value chains;
• Postpone by two years (until 2028) the reporting requirements for companies currently in the scope of CSRD and which are required to report as of 2026 or 2027.
• Reduce the burden of the EU Taxonomy reporting obligations and limit it to the largest companies (corresponding to the scope of the CSDDD),  while keeping the possibility to report voluntarily for the other large companies within the future scope of the CSRD. This is expected to deliver significant cost savings for smaller companies, while allowing businesses that wish to access sustainable finance to continue that reporting.
• Introduce the option of reporting on activities that are partially aligned with the EU Taxonomy, fostering a gradual environmental transition of activities over time, in line with the aim to scale up transition finance to help companies on their path towards sustainability.
• Introduce a financial materiality threshold for Taxonomy reporting and reduce the reporting templates by around 70%.
• Introduce simplifications to the most complex “Do no Significant harm” (DNSH) criteria for pollution prevention and control related to the use and presence of chemicals that apply horizontally to all economic sectors under the EU Taxonomy – as a first step in revising and simplifying all such DNSH criteria.
• Adjust, among others, the main Taxonomy-based key performance indicator for banks, the Green Asset Ratio (GAR). Banks will be able to exclude from the denominator of the GAR exposures that relate to undertakings which are outside the future scope of the CSRD (i.e. companies with less than 1000 employees and €50m turnover).

Simplifying due diligence to support responsible business practices

The main changes in the area of sustainability due diligence will:

• Simplify sustainability due diligence requirements so that companies in scope avoid unnecessary complexities and costs, e.g. by focusing systematic due diligence requirements on direct business partners; and by reducing the frequency of periodic assessments and monitoring of their partners from annual to 5 years, with ad hoc assessments where necessary.
• Reduce burdens and trickle-down effects for SMEs and  and small mid-caps by limiting the amount of information that may be requested as part of the value chain mapping by large companies;
• Further increase the harmonisation of due diligence requirements to ensure a level playing field across the EU;
• Remove the EU civil liability conditions while preserving victims' right to full compensation for damage caused by non-compliance, and protecting companies against over-compensation, under the civil liability regimes of Member States; and
• Give companies more time to prepare to comply with the new requirements by postponing the application of the sustainability due diligence requirements for the largest companies by one year (to 26 July 2028), while advancing the adoption of the guidelines by one year (to July 2026).“

For details see: Commission simplifies rules on sustainability and EU investments

The proposals that have just been published will now have to be analysed more closely.

Please note: These are proposals for legislation by the EU Commission. The Commission has announced that it will submit these proposals to the European Parliament and the Council for examination and decision-making. So it remains to be seen when and with what specific content the EU Commission's proposals will ultimately be adopted.

Dr Daniel Walden
Dr André Depping

The underlying analysis by Commission President Ursula von der Leyen at a press briefing is interesting: "Our business model has basically relied on cheap labor, from China presumably, cheap energy from Russia and partially outsourcing security and security investment. These days are gone."

The consequence of this: the EU Commission's plans for the three core areas of action: innovation, decarbonization and security, which are based on the recommendations of the Draghi report and described in more detail in the Compass. The Commission's aim is to make Europe the place where tomorrow's technologies, services, and clean products are invented, produced and marketed, while staying on course for climate neutrality. The Compass thus provides a first perspective on the question of whether the ESG topic is facing an end in light of the current political developments in the EU (for some basic thoughts on this, see our blog post Is this the End for ESG? | ADVANT Beiten). At least from the perspective of the compass, it appears rather unlikely that the transformation of the economy as such will be put on hold for the time being.

What is obviously set to change significantly, however, are the means: In the Compass, the EU Commission describes five so-called "horizontal enablers for competitiveness" with which it intends to achieve its goals in the three pillars of innovation, decarbonization and security. The first enabler, "simplification", is particularly relevant from a regulatory perspective, as it aims to drastically reduce regulatory and administrative burdens. This simplification is complemented by the reduction of barriers to the Single Market, the idea of a "European Savings and Investment Union" to finance the whole project, the promotion of skills and quality jobs and better coordination of policies at EU and national level.

The aspect of simplification mentioned in the Compass obviously requires a fundamental change. The EU Commission itself wants to make progress here and has already announced a first series of "Simplification Omnibus packages" for February 2025. One - and also the first - omnibus is to cover far-reaching simplification in the fields of sustainability finance reporting, sustainability due diligence and taxonomy. This refers to the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD) and the Taxonomy Regulation. The EU Commission had already announced facilitations in this regard following the Budapest Declaration on the "New European Competitiveness Deal" last fall. According to the agenda for the upcoming Commission meeting on February 26, 2025, Commission President Ursula von der Leyen herself is now responsible for the corresponding agenda item "Omnibus package: Chapeau communication and omnibus proposal" alongside Vice-President Stéphane Séjourné. This may reflect the political importance of this project and the many demands made on it (e.g. by the EPP as well as the German and French governments).

A first indication of the content of this "first omnibus" can already be found in the Compass: In order to ensure that regulation is proportionate to the size of the company, the EU Commission intends to propose a definition for a new category of company, the so-called "small micaps". These are to be companies that are larger than SMEs but smaller than large companies. The EU Commission announces that "thousands of companies in the EU will benefit from a tailored regulatory simplification in the spirit as SMEs". This could mean that the scope of application of the CSRD, which currently includes all large corporations as defined in Section 267 (3) of the German Commercial Code (HGB) from January 1, 2025, will be narrowed accordingly.

What does this mean for companies? As a rule, the implementation of the announced simplifications by the respective legislator alone will not be sufficient. In a second step, these simplifications will have to be implemented by the individual companies. The extent to which the processes set up by the respective company can and should be adapted in a meaningful way will have to be examined. The mere removal of a legal requirement does not automatically render an established process obsolete. To illustrate: If, for example, the obligation of the management board of a listed stock corporation to establish an appropriate internal control system (ICS) and risk management system (RMS), which was included in Section 91 (3) of the German Stock Corporation Act (AktG) in the wake of the Wirecard scandal, were to be repealed, it would be unwise to immediately abolish the ICS and RMS completely. However, it remains useful and necessary to keep an eye on what regulatory simplifications will result from the changes announced by the EU Commission over time, and how these can then be translated into corresponding simplifications in internal processes. Companies would have more room for maneuver, at least as long as it is ensured that decisions can be made on the basis of appropriate information, including ESG aspects where relevant. It therefore seems unlikely that ESG issues will cease to play a role for companies. On the contrary, the transformation of the economy and the resulting opportunities and risks for the business models of almost all companies remain on the agenda.

Dr Daniel Walden
Dr André Depping

All of this could be criticised as a hectic back and forth which seems to be rather far from the goals of clear and efficient guidance, predictability, and planning security. At the same time, the question is how this potential 'chopping and changing' on the part of the legislature may be perceived by the companies concerned. However, regardless of the ongoing political debate about the new ESG regulations, there are also some legal determinants for the ESG issue which can be expected to continue to be there in any scenario:

Laws already in force must of course be observed ('compliance') for as long as they will be in force. The mere possibility of a law being repealed is no justification for not abiding by it before this happens. This is true, for example, for the German Supply Chain Due Diligence Act which has been German law since 1 January 2023 (see our above-mentioned blog post). Applicable laws, however, also include the traditional general duty of care of board members and managing directors, where modifications − particularly with regard to the legal consequences of a breach of duty in the form of liability for damages - are discussed from time to time, but not their complete abolishment: 'In managing the affairs of the company, the members of the management board are to exercise the due care of a prudent manager faithfully complying with the relevant duties', section 93 (1) sentence 1 of the German Stock Corporation Act (Aktiengesetz, AktG). And sentence 2 of the provision makes it clear that entrepreneurial decisions are to be taken on the basis of adequate information and in the best interests of the company. What does this mean for entrepreneurial decisions − and especially key decisions on the corporate strategy and the business model, for which (also) ESG aspects are relevant and, therefore, part of the adequate information base? The management board should take adequate account of these ESG aspects when taking a decision (in addition to all the other relevant aspects) if it does not want to be exposed to allegations of breach of duty and liability claims later in the event of an unsatisfactory development of the company. And this regardless of CSRD, Taxonomy Regulation, CSDDD and the announced omnibus regulation (for details see Walden, NZG 2020, p 50 et seq: 'Corporate Social Responsibility: Rights, Duties and Liability of the Management Board and Supervisory Board').

Another closely related issue can be found in the field of banking supervision. Some years ago already, the supervisory bodies emphasised the relevance of ESG risks and the need to identify them in traditional risk management. Meanwhile, the minimum requirements for risk management of the German Financial Supervisory Authority (Mindestanforderungen an das Risikomanagement, MaRisk) contain numerous detailed provisions in this regard. And only on 9 January 2025, the European Banking Authority (EBA) published its 'Guidelines on the management of environmental, social and governance (ESG) risk' (Final Guidelines on the management of ESG risks.pdf). The executive summary states:

'ESG risks, in particular environmental risks through transition and physical risk drivers, pose challenges to the safety and soundness of institutions and may affect all traditional categories of financial risks to which they are exposed. To ensure the resilience of the business model and risk profile of institutions in the short, medium, and long term, the guidelines set requirements for the internal processes and ESG risk management arrangements that institutions should have in place. […] Institutions should integrate ESG risks into their regular risk management framework by considering their role as potential drivers of all traditional categories of financial risks, including credit, market, operational, reputational, liquidity, business model, and concentration risks.' (Emphasis added by the author)

This implies two things for companies in the real economy: Firstly, if ESG risks are relevant for financial institutions, then they are also relevant, and even more so, for their clients because ESG risks of the institutions often are the result of ESG risk of their clients, for instance where such a risk is passed on to the institution as a credit risk. Therefore, not only the institutions, but also the companies in the real economy do well to consider ESG risks in their traditional risk management systems (a legal requirement for listed companies under section 90 AktG since the Wirecard affair) in order to possibly avoid potential negative effects of any missing or inadequate consideration of ESG risks for the company. And secondly, regardless of the structure of the companies' own risk management, a 'trickle-down' effect can also be expected as the institutions must try to obtain relevant information from their clients for their own risk management processes and their clients are therefore confronted with corresponding requests for information. Thus, the inclusion of ESG aspects in the loan processes of institutions has already begun.

On the other hand, board members and managing directors should keep an eye on possible ESG opportunities in addition to ESG risks. For many companies, the transformation of the economy may also offer new business opportunities which need to be treated like any other business opportunities. 

All this, of course, applies primarily to the classic outside-in perspective of companies, but in some circumstances also indirectly to the inside-out perspective addressed by the CSRD from the point of double materiality, i.e. the impacts of business activities on the environment and society. This is because such negative impacts can reflect on the company if they are seen in a critical light by relevant reference groups such as (potential) customers and employees. And finally, looking into the supply chain is also nothing new, at least since the coronavirus and increasing geopolitical uncertainties.

As a result, dealing with the ESG risks and ESG opportunities relevant for the specific company appears to be appropriate with a view to the general duty of care of management board members and managing directors, even regardless of the CSRD. Interestingly, the Chief Sustainability Officers (CSOs) of more than 400 French companies who are members of the French C3D organisation have recently addressed the EU Commission regarding the EU Commission's omnibus plans and emphasised that 'ESG reporting and value chain assessment' are essential 'for resilience' as well as 'for survival, growth, and long-term competitiveness' of European companies. In addition, it would strengthen Europe's sovereignty by European norms setting global standards instead of leaving this to other, competing jurisdictions (presumably referring to what is known as the Brussels Effect). The French CSOs therefore advise the EU Commission to take practical measures to improve the clarity and effectiveness of the regulations without jeopardising their strategic goals. As has already been made clear at the beginning, there certainly are enough voices advocating the opposite view and seeing an unchanged continuation as a serious competitive disadvantage.

So, it definitely will be interesting to see how this discussion will develop. Neglecting relevant ESG aspects 'only' for this reason could prove risky for company managers. Making well-considered decisions on an adequate information basis is the be-all and end-all (also) in this respect.

Dr Daniel Walden
Dr André Depping