ESG at a Crossroads: CBAM, Simplified Reporting, and Real Costs of the Climate Crisis

As of January 1, 2026, the European Carbon Border Adjustment Mechanism (CBAM) is fully in effect. The European Commission integrated the CBAM registry^[1] with customs systems, and importers of cement, steel, aluminum, fertilizers, electricity, and hydrogen exceeding the threshold of 50 tons annually must have a CBAM account and report^[2] embedded emissions in their products. The regulation aims to curb so-called carbon leakage, which is the relocation of production to countries with weaker climate policies, as well as to equalize the carbon cost between production within the European Union and imports. Brussels has announced the possibility to extend the mechanism from 2028 to cover processed products, with the first evaluation planned for 2027, already generating trade tensions with China and the USA and the risk of disputes at the World Trade Organization.

CBAM and ESG Reporting Reform

Simultaneously, EU institutions agreed on the Omnibus I package^[4], which amends the CSRD and CSDDD directives. For sustainability reporting under CSRD, new thresholds set at 450 million euros^[5] in net revenue and 1000 employees, and for mandatory supply chain due diligence under CSDDD – 1.5 billion euros in revenue and 5000 employees, with full application postponed to July 2029. EFRAG is tasked to advise on simplified ESRS standards by December 2025^[13], which The European Commission plans to adopt by June 2026^[14]. Omnibus I also reduces auditing requirements^[15] – from full to limited assurance – cutting costs but requiring companies to improve data management to maintain disclosure credibility to investors and supervisory authorities, including the future ESG assessment regime overseen by ESMA.

Solar Energy Beats Coal, Hydrogen Slows Down

The International Energy Agency estimates in its “Renewables 2025” report^[16] that solar and wind power capacities worldwide will grow by 20% in 2026, with about 80% of new capacity contributed by photovoltaics^[17], largely dispersed on residential and commercial rooftops. China alone added approximately 240 GW of new solar installations in 2025^[18] and maintains over 95% share in panel production and more than 80% in battery manufacturing. At the same time, development of BESS energy storage systems is forecasted to grow 31% annually^[19], while offshore wind capacity is expected to increase by 140 GW over the decade. Behind this, a rising number of corporations have approved net-zero targets following the Science Based Targets initiative, facilitating access to green investment financing and demanding precise decarbonization pathways covering emissions throughout the value chain.

Negative Energy Prices and Storage Gaps

The rapid expansion of renewables, however, disrupts wholesale energy markets. In 2025, the number of hours with negative electricity prices in Europe sharply increased^[20]—to about 500 hours in Spain and around 300 hours in Germany. Low marginal costs of solar and wind generation combined with insufficient storage lead operators to lower prices below zero on sunny and windy days, limiting renewables producers’ revenues and complicating revenue modeling under PPA contracts. In response, the European Union announced a support package worth about 650 million euros^[22] for energy storage and hydrogen infrastructure, yet bottlenecks in storage and grid congestion are projected to persist at least until the decade’s end, heightening risks of grid instability and further pressure for tariff redesign.

Water Crisis and Climate Migration

On the level of physical climate impacts, the latest meteorological and hydrological data indicate a worsening water crisis^[31]. Intense rainfall linked to La Niña phases causes floods^[33], while the western part of the continent endures prolonged drought. Precipitation was below average^[35] in eight out of ten months in 2025, with hydrological services warning that a lack of a wet winter may trigger renewed drought in spring 2026 and the need to close additional stretches of navigable canals. At the same time, California recorded no formally designated drought areas in January 2026^[36] for the first time in about 20 years, though experts caution that irregular swings between drought and floods will exacerbate water conflicts in river basins like the Colorado. Meanwhile, Tuvalu sent its first formally recognized group of climate migrants to Australia^[34], aligning with estimates that 218 million people have been displaced due to climate reasons in the last decade, with potential doubling by 2035.

Underfunded Biodiversity

The climate crisis also intensifies pressure on biodiversity. The U. S. Fish & Wildlife Service announced in January 2026 that an additional 10 species require protection, while an analysis by the Center for Biological Diversity identified 2204 species in the USA^[39] meeting the Endangered Species Act criteria. Approximately 400 species remain in administrative queues, and the proposed federal budget cuts species classification funding from 22 million dollars to 14 million dollars, a 36% reduction, possibly slowing protection grants to fewer than 30 species annually. Meanwhile, global goals under the Montreal Protocol as part of the Convention on Biological Diversity — protecting 30% of land and oceans by 2030 — remain underfunded, and ecosystem functions such as flood mitigation, water purification, and provision of food and medicine are gradually degrading. Combined with tightening anti-greenwashing regulations and the growing importance of rules like CSRD and CBAM, this creates a landscape where adapting to climate change impacts becomes as urgent as emission reduction.

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