2025 ESG and Environmental Regulation Review and 2026 Preview

Article Highlights:

• Throughout 2025, investors, lenders, and other stakeholders reinforced this trajectory by demanding credible evidence that companies understand and control the ESG risk embedded in their supplier networks. Against this backdrop, 2025 became a defining year, one in which ESG principles were translated into concrete, system-level compliance obligations.
• One of the most significant developments was the formal adoption of the Corporate Sustainability Due Diligence Directive (CSDDD). While political negotiations around scope and proportionality of this regulation continued well into 2025, the final outcome firmly embedded supply chain due diligence into EU law. 
• The year 2025 also marked a critical phase for the EU Deforestation Regulation (EUDR). During the year, regulators confirmed adjusted application timelines and clarified operational expectations, triggering widespread compliance preparation across affected industries. 

The year 2025 represented a decisive shift in how ESG and environmental regulations are structured, enforced, and operationalized (particularly where these frameworks intersect with global supply chains). What was once framed largely as sustainability reporting or corporate transparency has evolved into enforceable obligations that require companies to actively manage environmental and social risk across their value chains. Supply chain regulations are no longer peripheral to ESG strategies; they’re now central to regulatory compliance, risk governance, and corporate accountability.

This shift reflects a growing recognition by regulators that many of the most severe environmental impacts, human rights violations, and compliance risks occur outside a company’s direct operations. As a result, supply chain due diligence, supply chain risk management (SCRM), and supply chain visibility have become foundational regulatory expectations. Throughout 2025, investors, lenders, and other stakeholders reinforced this trajectory by demanding credible evidence that companies understand and control the ESG risk embedded in their supplier networks. Against this backdrop, 2025 became a defining year, one in which ESG principles were translated into concrete, system-level compliance obligations.

Key Regulatory Developments in 2025

In 2025, regulators focused less on introducing entirely new sustainability concepts and more on finalizing, operationalizing, and aligning existing ESG and environmental frameworks into enforceable regimes. This consolidation essentially reshaped how companies were forced to approach supply chain due diligence, environmental accountability, and governance integration.

One of the most significant developments was the formal adoption of the Corporate Sustainability Due Diligence Directive (CSDDD). While political negotiations around scope and proportionality of this regulation continued well into 2025, the final outcome firmly embedded supply chain due diligence into EU law. The directive clarified that companies must maintain an ongoing, risk-based due diligence system covering both human-rights and environmental impacts across their value chains. Under the CSDDD, environmental requirements extend beyond climate considerations to include pollution, hazardous substances, biodiversity loss, and ecosystem degradation. Collectively, these rules reinforce the idea that environmental harm within supply chains constitutes an ESG governance risk rather than a narrow compliance issue.

Importantly, the CSDDD reframed due diligence as a governance obligation. Companies are expected to integrate supply-chain risk management into policies, decision-making, and oversight structures, rather than treating ESG as a parallel reporting exercise. This clarification in 2025 reinforced that visibility into tier-n suppliers, material flows, and environmental exposure is essential to compliance.

EU Packaging and Waste Regulation 

Another major regulatory milestone in 2025 was the finalization of the EU Packaging and Packaging Waste Regulation (PPWR). By replacing the former directive with a directly applicable regulation, the EU harmonized packaging sustainability rules and Extended Producer Responsibility (EPR) obligations across member states. This change fundamentally repositioned packaging EPR as a core environmental governance mechanism that directly supports ESG objectives and value chain accountability.

Under the PPWR, producer responsibility is explicitly linked to packaging design, material composition, recyclability performance, recycled content, and lifecycle impacts. As a result, packaging compliance now depends on reliable supply chain data, information that often resides multiple tiers upstream. In practice, the PPWR operationalizes environmental due diligence by translating ESG principles into measurable, enforceable packaging obligations, making EPR an integral component of ESG regulation.

EU Deforestation Regulation

The year 2025 also marked a critical phase for the EU Deforestation Regulation (EUDR). During the year, regulators confirmed adjusted application timelines and clarified operational expectations, triggering widespread compliance preparation across affected industries. Companies began implementing traceability systems capable of linking commodities to plot-level origin, conducting country-risk assessments, and documenting mitigation measures. These activities reinforced the EUDR’s role as one of the most stringent environmental due diligence regimes globally, and a close conceptual counterpart to the CSDDD. In the way it emphasizes supply chain visibility, risk classification, and documentation of preventative actions, the EUDR is a robust complement to the Corporate Sustainability Due Diligence Directive.

In the way it emphasizes supply chain visibility, risk classification, and documentation of preventative actions, the EUDR is a robust complement to the Corporate Sustainability Due Diligence Directive.

The Rest of the 2025 Regulatory Landscape

Product-specific ESG regulation also advanced in 2025 through the EU Batteries Regulation (EUBR). The regulation moved decisively from legislative adoption to implementation, with due diligence obligations for battery raw materials becoming operationally relevant. Companies began aligning sourcing, recycled content, carbon-footprint data, and supplier documentation with ESG governance frameworks. The EUBR stands out as a clear example of how ESG regulations, environmental performance, and EPR obligations are converging at the product and material level, instead of remaining requirements imposed by individual corporations.

Alongside these developments, 2025 also saw continued alignment between ESG frameworks and traditional environmental regulations. Updates under EU REACH and the EU Persistent Organic Pollutants reinforced restrictions on hazardous substances commonly embedded within supplier networks. These regimes increasingly function as upstream data requirements feeding broader supply-chain risk management and ESG compliance systems.

Outside the EU, regulatory pressure on supply chain data and substance transparency emerged as a key theme in certain geographical regions. In the United States, California Proposition 65 continued to expand its chemical listings and enforcement activity, reinforcing expectations that companies maintain accurate upstream chemical knowledge—even where no new legislation was introduced. At the same time, state-level Extended Producer Responsibility laws for packaging progressed operationally, further embedding lifecycle responsibility and material reporting into U.S. environmental governance.

In Asia, China RoHS continued to influence global electronics supply chains through ongoing catalog management, marking requirements, and alignment pressures with EU substance restrictions. While not a new regulatory milestone, its continued evolution in 2025 underscored the persistent complexity of managing substance compliance across global supplier networks.

Across jurisdictions, a defining characteristic of 2025 was regulatory consolidation. Policymakers sought to clarify interactions between ESG regulation, environmental regulation, and supply-chain regulations, while acknowledging implementation challenges for complex global supply chains. These efforts did not dilute expectations. Instead, they reinforced a consistent message: companies must establish credible, risk-based supply chain due diligence systems supported by transparent data and effective governance.

Supply-Chain Risk Management and Due Diligence in Practice

As regulatory frameworks solidified in 2025, attention increasingly shifted toward implementation. Supply chain due diligence is now understood as a continuous operational process, rather than a static compliance artifact. In practice, this process requires companies to embed ESG policies into governance structures, map supply chains, assess environmental and social risks, implement mitigation measures, monitor effectiveness, enable remediation, and report outcomes in a consistent and defensible manner.

Supply chain due diligence is now understood as a continuous operational process, rather than a static compliance artifact.

Many organizations continue to face structural challenges in executing this process. Global supply chains are complex, fragmented, and dynamic, with limited visibility beyond tier-one suppliers. Data gaps remain common, particularly for environmental attributes such as chemical content, emissions, packaging composition, or land-use impacts. These challenges are compounded by uneven supplier maturity and resource constraints.

In spite of all these well-known obstacles, regulators increasingly expect a proportionate, risk-based approach to supply chain risk management. Companies are expected to prioritize high-risk materials, geographies, and supplier relationships, supported by documented methodologies and governance oversight. Supply chain visibility has become a prerequisite for meeting due diligence obligations under frameworks such as the CSDDD, PPWR, EUDR, EUBR, REACH, and EPR laws.

Why Supply Chain Visibility and ESG Governance Are Critical

The developments of 2025 made clear that supply-chain visibility and ESG governance are foundational elements of regulatory compliance and enterprise risk management. Transparency enables companies to identify environmental risks (such as hazardous substance exposure, packaging non-compliance, or deforestation-linked sourcing) before they escalate into regulatory violations or reputational harm. It also supports human rights safeguards by revealing labor and sourcing risks embedded in supplier networks.

From a strategic perspective, robust supply-chain risk management enhances investor confidence, improves resilience, and future-proofs operations against regulatory change. Companies that integrate ESG policies into board-level governance, procurement criteria, and supplier engagement processes are better positioned to respond to evolving supply chain regulations. In this context, ESG governance should be seen less as a strict compliance cost than as an opportunity to drive long-term resilience and value creation.

2026 Preview: What to Watch Next

Looking ahead to 2026, regulatory emphasis will shift from legislative finalization to enforcement and operational maturity. The PPWR will become enforceable across the EU in August 2026, activating harmonized packaging design, labeling, recyclability, and EPR requirements. Companies placing packaged goods on the EU market will need to demonstrate conformity using reliable supply chain data and documented compliance processes.

The EUDR will also enter its primary application phase, with large and medium companies required to demonstrate traceability, risk assessment, and mitigation measures for regulated commodities. This will further intensify expectations for supply chain visibility and environmental due diligence.

At the same time, implementation of the CSDDD will progress toward enforcement, with regulators expected to scrutinize governance integration, risk-prioritization methodologies, and evidence of meaningful mitigation across value chains. Product-specific ESG regimes such as the EU Batteries Regulation will continue to implement additional due diligence and reporting obligations, reinforcing convergence between EPR, environmental regulation, and ESG governance.

In the United States, state-level EPR programs will move further into their reporting phases, while TSCA PFAS reporting and related risk-management measures will increase pressure on companies to centralize chemical and supplier data. Globally, continued activity under regimes such as California Prop 65 and China RoHS will underscore the need for harmonized supply chain data systems capable of supporting multiple regulatory frameworks simultaneously.

Recommendations for the Year Ahead

The regulatory developments of 2025 confirmed that ESG regulation and environmental directives are now structurally linked to supply chain accountability. Frameworks such as the CSDDD, PPWR, EUDR, and EUBR demonstrate how supply chain due diligence, extended producer responsibility, and environmental compliance are no longer separate disciplines but interconnected mechanisms designed to manage lifecycle risk and improve sustainability outcomes.

As enforcement intensifies in 2026, companies that proactively strengthen supply-chain visibility, formalize risk-management processes, and embed ESG governance into core business operations will be best positioned to navigate regulatory complexity. Immediate priorities should include advancing supply-chain mapping, aligning EPR and product-specific data with ESG due diligence systems, integrating ESG oversight into governance structures, and investing in scalable tools for supplier data collection and monitoring.

Companies interested in achieving this level of synergy between their supply chain visibility, supplier due diligence, and material-level data will find Z2Data to be a powerful tool. The SCRM software offers organizations multi-tier mapping, comprehensive supplier risk analysis, and data on over one billion parts, among other capabilities. And the platform’s industry-leading customer support team can help firms navigate an increasingly complex regulatory landscape with confidence and decisiveness.

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