EU Sets 90% Emissions Target by 2040 — But Weakens Supply Chain Rules at the Same Time

In a week packed with landmark policy decisions, the European Union sent two very different signals to the world of sustainability and ESG. On one hand, EU member states formally approved one of the most ambitious greenhouse gas reduction targets on record — a 90% cut in emissions by 2040 compared to 1990 levels. On the other, Brussels quietly scaled back mandatory supply chain due diligence rules, easing pressure on companies to account for environmental and human rights risks across their global operations. The contrast is striking, and it raises urgent questions for businesses, investors, and citizens navigating the green transition.

A Climate Target That Raises the Bar — and the Stakes

The EU’s newly finalized 2040 climate target is a significant step forward in the bloc’s long-term strategy to achieve climate neutrality by 2050. The 90% emissions reduction goal goes beyond the current 2030 target of at least 55% (under the Fit for 55 package) and sets a demanding trajectory for every sector of the European economy — from energy and transport to agriculture and industry.

The timing is not accidental. Europe is under growing pressure to demonstrate credibility ahead of the next round of global climate negotiations, while also responding to a rapidly shifting geopolitical landscape. Adding weight to the momentum, China announced an acceleration of its carbon intensity reduction plan, targeting a 17% cut during its current five-year period — surpassing the ambition of the previous 2020–2025 cycle. For the first time in years, the world’s two largest emitting blocs appear to be moving in the same direction, even if through very different policy mechanisms.

For European businesses, the 2040 target translates into concrete pressure: capital allocation strategies, product design, and energy sourcing will all need to align with a steeper decarbonisation curve. Sustainable finance instruments — green bonds, sustainability-linked loans, and EU Taxonomy-aligned investments — are expected to play a central role in channelling the capital needed to meet these goals.

Supply Chain Transparency: A Step Back on Corporate Responsibility

While the climate target made headlines for its ambition, the parallel rollback of EU supply chain rules deserves equal scrutiny. The revised directive significantly narrows the scope of mandatory due diligence obligations that companies must fulfil regarding environmental and human rights risks in their supply chains.

The changes came after intense lobbying from business associations and diplomatic pressure from governments including the United States and Qatar — a reminder that ESG regulation does not exist in a vacuum, but is shaped by trade relationships and geopolitical interests. Critics argue the diluted rules undermine the EU’s credibility as a global standard-setter for corporate responsibility, particularly at a moment when supply chain transparency is increasingly central to sustainable finance frameworks and investor due diligence.

The original directive, known as the Corporate Sustainability Due Diligence Directive (CSDDD), had been hailed as a cornerstone of the EU’s green business agenda. Its weakening raises concerns among NGOs, ESG analysts, and sustainable investors who rely on supply chain disclosures to assess real-world environmental and social impacts — not just headline emissions figures.

What This Means for ESG Strategy and Green Business

Taken together, these developments reflect a broader tension at the heart of European sustainability policy: the ambition to lead on climate, combined with political and economic pressures that slow progress on corporate accountability. For companies operating in or with Europe, the practical implications are significant:

• Decarbonisation planning must now account for a 2040 milestone, not just 2030 — requiring longer-term capital investment and science-based target alignment.
• Supply chain ESG reporting may face reduced mandatory requirements in the short term, but institutional investors and major clients will likely maintain — or raise — their own due diligence expectations.
• Sustainable finance frameworks, including the EU Taxonomy and SFDR, remain in place and continue to reward transparency and environmental performance.
• Companies that treat ESG as a compliance exercise risk falling behind peers who embed circular economy principles and supply chain responsibility into their core business models.

Key Takeaway

The EU’s 90% emissions target is a genuine milestone — a signal that Europe’s climate ambition remains structurally intact, even as political headwinds grow. But the simultaneous weakening of supply chain rules is a reminder that sustainability progress is rarely linear. For businesses, investors, and policymakers, the message is clear: setting targets is only half the work. The harder challenge — and the greater opportunity — lies in building the accountability structures that make those targets real.