Political breakthrough: agreement on the 2040 climate target
On 5 November 2025, the member states of the European Union reached a historic agreement on the climate target for 2040: a net 90% cut in greenhouse gas emissions against 1990 levels. It lands just before COP30 and is the most ambitious interim target on the road to full climate neutrality in 2050.
The key points of the agreement:
- The 90% cut has to be delivered largely within the EU, with no more than 5% offset through ‘foreign carbon credits’.
- In practice, EU companies must achieve at least 85% of their emission reductions in Europe itself; the remainder can be covered by certified climate projects outside the EU.
- Central instruments such as the new ETS II (the carbon market for transport and buildings) are being pushed back by a year, to 2028.
- This change of course is both a compromise and an opening: a chance for companies to recalibrate strategy and investment against the new rules and the added flexibility.
What it means for the Omnibus legislation and ESG policy
The new climate agreement has a direct bearing on the ongoing Omnibus process to revise the CSRD, the CSDDD and the Taxonomy Regulation:
- The tighter but more flexible climate targets will set the tone for how corporate sustainability due diligence and reporting are shaped in future.
- With political pressure mounting, simpler due diligence, later deadlines and a split in obligations between large and mid-sized companies now look all but inevitable.
- Legal negotiations remain intense. The reworked scope and reporting requirements (Omnibus I) mean companies with >1,000 employees fall straight under heavier climate obligations, while smaller businesses will for now mainly face sectoral reporting.
Governance recommendations for business
- Recalibrate your strategy and risk profile against the 2040 target: the bar is higher and external credits are capped, which makes internal, structural emission cuts more urgent still.
- Keep investing in digital reporting systems and supply chain monitoring: the demands of real-time data, periodic reporting and external audit will only grow, not least because of what the 2040 target does to due diligence processes.
- Anticipate national differences and extra requirements: member states can set their own emphasis within the EU directive, particularly as the Omnibus package is written into national law by 2027–2028.
- Make the most of the pilot and transition periods in the reporting standards and ETS II: use the coming years to test compliance systems, train staff and update contracts.
- Consider working with recognised legal and technical partners to map out scenarios and sense-check strategic choices. At the current pace of EU law-making, sitting and waiting is not an option.
Conclusion: momentum and uncertainty at the same time
The EU agreement on the 2040 climate target is a game changer, but it raises questions about the detail, about enforcement and about how each country will implement it. Businesses that get ahead with flexible, well-anchored sustainability policy and scenario planning gain a strategic edge. Governance, legal structure and digital compliance will only matter more.
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