Insights into the Clean Industrial Deal

The evolution of the EU climate agenda – from compliance to competitiveness and resilience

The European Union (EU) has been lagging in global competitiveness and innovation. Recent geopolitical tensions, leading to a de facto trade war, add challenges to an economy battling a prolonged energy crisis, struggling to secure critical raw materials and attracting the right talents. An action plan was desperately needed, not just for immediate economic stability, but rather for reigniting long-term competitiveness and resilience.

The need for such a plan is not new. In 2019, the EU published its flagship ‘European Green Deal’ – setting out an ambitious strategy to “transform the EU into a modern, resource-efficient and competitive economy”. To implement the Green Deal, the EU mainly followed the course of compliance while providing finance through various funds and incentive schemes. Pivotal legislative initiatives like the ‘European Climate Law’, ‘Fit for 55’, the Carbon Border Adjustment Mechanism (CBAM), and the groundbreaking CSRD, are a few key examples on how the EU aimed at driving innovations to achieve at least a 55% greenhouse gas (GHG) emissions reduction by 2030, and climate-neutrality by 2050.

The current state of the EU economy is a testament to the failure of the approach taken. A complex regulatory regime, fragmented markets and decreasing labor productivity have been criticized as inhibitors of innovation, investment and growth. A falling market share in digital tech and relocation of more than 25% (40 out of 147) of EU-founded ‘unicorns’ are a few illustrations of this stagnation. In our previous article, Impact of EU Compass on your ESG Strategy, we discussed these challenges and predicted a competitiveness-oriented future for European industrial policy.

On 26 February 2025, the European Commission published the (sustainability) ‘Omnibus Package’ and the ‘Clean Industrial Deal’ with an aim to address these challenges to competitiveness, economic resilience and the inevitable climate crisis. While the Omnibus Package proposes to streamline sustainability reporting, due diligence and eliminate compliance costs, the Clean Industrial Deal is meant to bring together “climate action and competitiveness under one overarching growth strategy”, to uphold the climate-neutrality ambitions of the European Green Deal.

This has created some confusion, and our clients have been reaching out to understand the key business implications of this landmark policy package. Does the Clean Industrial Deal change the ESG discourse and ambitions in the EU? What are the key opportunities for businesses while the EU is transitioning towards a decarbonized and resilient economy?

At KPMG, we welcome the Clean Industrial Deal (CID) proposal. We believe that the CID paves the way to a strategic transition, which focuses on key ESG topics and brings considerable energy and resource security advantages to businesses, essential in the current geopolitical times. As the Sustainability Omnibus Package proposes reduced compliance costs and burdens for corporate actors, this provides an opportunity for value-chain-wide investments and innovation.

The Context: The ‘Clean Industrial Deal’ as a re-focused enabler of the ‘European Green Deal’

Can the CID keep Europe on track of its climate ambitions, by providing an actionable roadmap to mobilize investments and efforts?

There are some concerns over the weakening of the Green Deal as the Omnibus Package proposes sweeping amendments to its reporting and compliance cornerstones (CSRD, CSDDD, EU Taxonomy, CBAM), for example exempting up to 80% of previously in-scope companies from sustainability reporting obligations.

In our view, the CID does not undermine but rather re-focuses the Green Deal. While ambiguity remains in the detailed implementation of the proposal, we see clear priorities emerging which will be instrumental in steering the EU industrial transition, and offering opportunities for early movers. Three major measures where the CID aims to consolidate and strengthen key Green Deal mechanisms, easing the rollout of existing policies and offering competitive market advantages to already transforming businesses:

The CID reasserts the EU’s ambition for a net-zero economy by 2050 and mentions an intermediate 2040 target of a 90% greenhouse gas emissions reduction (first presented in early 2024). Although there is a delay in a legislative proposal for the same, a 2040 target is crucial in guiding the post-2030 transformation pace of the economy.
The Industrial Decarbonisation Accelerator Act proposes to: a) address permitting bottlenecks for clean energy supply, b) stimulate demand through voluntary carbon intensity labels, and c) integrate non-price criteria for sustainability and resilience into procurement methodologies; all with the aim to give competitive advantage to EU-made clean products and first movers. These measures build upon and strengthen Green Deal initiatives like the Renewable Energy Directive, the Critical Raw Materials Act and the Net-Zero Industry Act (NZIA), which have faced implementation barriers due to high energy prices, complex permitting procedures for clean energy deployment and investment gaps (particularly in relation to grid infrastructure).
The CID proposes a number of specific actions to help finance the clean transition, including establishing the Industrial Decarbonisation Bank to leverage existing vehicles such as InvestEU, the Innovation Fund and the EU Emissions Trading System (EU ETS), to deploy EUR 100 billion from public and private sources over the next ten (10) years into building a clean industrial sector. The bank intends to streamline the bureaucratic barriers to funding, ensure competitiveness and fairness in allocation of capital across Member States and take a technology-neutral approach to closing the finance gap in the EU.

The Opportunities: Energy and resource security through decarbonization and circularity, with skills and investment

The CID positions decarbonization and circularity as fundamentals for clean and resilient value chains: two opportunities that in our view are essential in driving the corporate strategic ESG agenda forward, highlighting an often overlooked benefit of ESG: security.

To achieve such security, the CID proposes key drivers, with a focus on the energy-intensive industries and clean tech sector – which are considered the current and future spines of the European economy. We outline these six drivers and the opportunities companies could unlock:

	Drivers	Opportunities
1. Affordable energy for industrial competitiveness	The ‘Affordable Energy’ Action Plan aims to support: lowering of energy bills for end-consumers; boosting clean energy and industry electrification supported by efficient distribution; ensuring a well-functioning gas market. In addition, the European Investment Bank (EIB) leads key supply-side initiatives to accelerate Power Purchase Agreements (PPAs), cross-border PPAs and Contracts for Difference (CfD) to drive clean energy production, supported by the ‘Industrial Decarbonisation Accelerator Act’. The latter targets elimination of permitting lags and red tape, for affordable and timely clean energy access.	Energy-intensive businesses in the EU are recommended to leverage on the ease of permitting clean energy and establish PPAs to accelerate their renewable energy generation and/or application. This presents an opportunity for securing energy for business operations and decoupling electricity costs from the volatility of (imported) natural gas prices.
2. Boosting supply and demand for clean products	The strategy aims to create lead markets to: ensure trust in clean energy investment; drive innovation; create market incentives for clean manufacturing. The ‘Industrial Decarbonisation Accelerator Act’ boosts demand for clean products by re-aligning procurement criteria and introducing a voluntary label on carbon intensity of industrial products. The delegated act on low carbon hydrogen (Q1 2025) and the ‘Hydrogen Bank’ will be essential for hard-to-electrify industries to decarbonize their products, by providing guiding frameworks, linking participants, aggregating demand and de-risking investment in hydrogen.	Corporates are encouraged to use their GHG emissions data, which is by now would be properly managed and accurately consolidated, to tap into early benefits of voluntary carbon intensity labelling of products. In a clean economy, spearheading engagement with voluntary measures will help in demonstrating ESG leadership and business growth. Corporates with a hard-to-electrify production processes should explore the options provided by low carbon hydrogen.
3. Financing the clean transition	The CID strengthens the Innovation Fund and proposes an Industrial Decarbonisation Bank to consolidate and mobilize investments of up to EUR 100 billion. This proposal is aimed at: centralizing EU funding; enhancing access to state aid and active private actors at scale; increasing risk-bearing capacity of InvestEU towards investments in advanced clean energy and disruptive technologies.	Companies can leverage their CSRD reporting preparations done so far to apply for investment by proving the decarbonization potential of clean tech projects. Corporate sustainability reporting can evolve from a compliance tool into a market differentiation mechanism. Through closing data gaps for investor-relevant metrics, we also see increased opportunity for corporates to apply for funding through various national and EU level funds.
4. Circularity for raw-material and resource resilience	Accelerated implementation of the ‘Critical Raw Materials Act’ and proposal to establish the ‘EU Critical Raw Materials Centre’ aim to: increase supply chain resilience through public and private financial support; value chain diversification and supply monitoring; collaboration across the EU and trade partner countries. The proposed ‘EU Circular Economy Act’ (2026) aims to stimulate demand for circular inputs, boost local recycling capacity and incentivize the transition to circular value chains.	Companies have the opportunity to gain first mover advantage by: accessing the circularity potential of their value chain; embedding circularity principles in their business; avoiding unexpected compliance burdens in a changing regulatory environment (as seen in the case of CSRD). This, coupled with more cross-sectoral collaborations, can lower corporate resource dependency and potential supply chain disruptions, and tap into the economic benefits of reduced virgin material.
5. International partnerships for sustainable value chains	CID proposes measures for a future-proof economy by: seizing opportunities in the global clean tech markets; building international partnerships to secure supply of critical materials; combining these with trade defense mechanisms to maintain competitiveness of EU products. Accelerated implementation of Free Trade Agreements (FTAs) and development of clean trade and investment partnerships (CTIPs) will enable this diverse and resilient network of materials, investments and innovations. Simplification and possible extension of the CBAM (legislative proposal in 2026) will mitigate carbon leakage and promote carbon markets worldwide.	Corporate actors can leverage the proposed mechanisms to strengthen existing value chain collaborations, explore use-cases for clean technologies, and unlock investments to develop and pilot innovations. This will lower the embedded carbon intensity of products, reducing the carbon cost burden on corporates to which CBAM applies.
6. Just transition through quality jobs and upskilling	The CID recognizes that a skilled workforce is key to maintaining social cohesion and equity through this transformation. This will be achieved through various income protection measures and reforms in labor market policies. An overarching skills strategy – Union of Skills – and supporting initiatives like a Skills Portability Initiative will ensure systematic upskilling and skills transfer between Member States.	Any large business transformation is at risk of labor and skills shortages, which can materialize in substantial operational costs as well as disruptions. The CID will support companies in making strategic investments in employee upskilling, reskilling and social security initiatives to ensure a just transition, driven by a capable and productive workforce.

The Challenges: Existing finance gap and ambiguity in implementation emerge as key concerns

Although the Clean Industrial Deal sets the right priorities, we also identified areas which require strengthening and attention for an effective implementation:

The CID does not provide detailed actions for ensuring strong environmental and social conditionalities of public investment. The proposal acknowledges the importance of a fossil fuel phase-out and tax measures to make a stronger business case for electrification, but concrete measures to implement the ‘polluter pays’ principle are ambiguous.
The CID is silent on key environmental topics like chemical pollution, biodiversity loss and human rights, which are essential for health and wellbeing of society. Ambitions to create a nature-sensitive, zero-pollution and toxin-free industry are not iterated in the CID.
The easing of EU’s key corporate sustainability frameworks (CSRD, CSDDD, EU Taxonomy) could create financing barriers, especially for small and medium enterprises (SMEs), due to a lack of data, which is required by investors to make decisions, manage risks, identify opportunities and channel capital towards a clean economy.
A conclusive legislative proposal for an intermediate 2040 climate target is much awaited, and until then actionable long-term measures will remain under threat. This target is key for beginning an effective policy dialogue for the post-2030 sustainability agenda, which is less than 1,000 working days from today.

We consider it critical for the European Commission to address the above points when releasing the individual policy actions announced in the package.

The Verdict: The Corporate Sector has an essential role in propelling the Clean Industrial Deal

We want to conclude this article by emphasizing the importance of the corporate sector in propelling the Clean Industrial Deal. Companies can create markets of scale through collaboration, unlocking investments, influencing consumer demands and maximizing the contribution of skilled communities in the transition. This is critical to nurturing a clean economy and enhancing security from geopolitical disturbances and international trade uncertainties.

In addition to the actions as outlined in this article, we recommend three general actions for corporates to align with the CID objectives and position themselves as leaders at the onset of the transition:

Improve future resilience by working on three interconnected ESG transformations: your business portfolio, your operations and your reporting process.
Strategize your ESG agenda and efforts by differentiating between ‘hygiene topics’ and value creation topics.
Invest in decarbonization and circularity levers as measures beyond purely operational transformation, and rather towards business competitiveness and security.

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