UK and EU ESG Rules Add New Transaction Risks
New UK deforestation rules and EU regulations on sustainable packaging and greenwashing are creating significant new due diligence hurdles and potential liabilities for corporate transactions.
A trio of regulatory developments in the UK and EU is set to reshape ESG compliance and transaction diligence. The UK government announced it will expand mandatory due diligence requirements to cover a wide range of "forest risk commodities" beyond timber, including soy, palm oil, and beef, aligning with the EU’s Deforestation Regulation (EUDR). In parallel, the EU’s Packaging and Packaging Waste Regulation (PPWR) began to take effect in August 2026, imposing new standards for recyclability and waste reduction. Finally, the EU’s directive against greenwashing (ECGTD) comes into force September 27, 2026, prohibiting vague environmental claims like "eco-friendly" and sustainability labels not based on official certification. For corporate and private equity deal teams, these rules introduce critical new diligence streams. Acquirers must now rigorously assess a target’s supply-chain exposure, packaging compliance, and marketing claims to avoid inheriting significant post-closing liabilities and remediation costs. Counsel should watch for UK legislation implementing the deforestation regime in 2027 and monitor ongoing guidance on the new EU rules.