Allianz Risk Barometer 2025 -
Global risk #4: Changes in legislation and regulation (25%)

2025 will be the year of de-bureaucratization. At least if the announcements of the new governments on both sides of the Atlantic are to be believed. Ursula von der Leyen, re-elected President of the EU Commission, promises cutting red tape. And President-elect Donald Trump has even created a new 'department' – the Department of Government Efficiency (DOGE) headed by Elon Musk – to radically reduce the regulatory jungle.

However, skepticism is appropriate and shared by many companies which still see legislation and regulation as a top four risk in the Allianz Risk Barometer. Why? For one, promises of less red tape are a recurring refrain in the corridors of the Brussels bureaucracy. “Reducing the regulatory burden” for the purpose of strengthening competitiveness was already a central component of the so-called Lisbon Strategy – which was adopted by the EU way back in 2000. And yet another problem arises in this context: a large proportion of the new regulations revolve around sustainability, first and foremost among them being the Corporate Sustainability Reporting Directive (CSRD).

“Without question, these reporting requirements create new burdens for the companies concerned. However, the CSRD data helps to make climate risks transparent,” says Ludovic Subran, Chief Investment Officer and Chief Economist at Allianz. “For example, how are banks and institutional investors such as insurers supposed to align their portfolios with the Paris climate targets if they know little or nothing about their investees’ emissions and adaptation paths? How is biodiversity protection supposed to work without knowledge of the ecosystem services for companies and their impairment by the same?

“In this sense, 2025 could become a ‘moment of truth’ as to whether regulatory fatigue will enter into an unholy alliance with climate fatigue and follow the false narrative that this will serve Europe's competitiveness. In fact, for improving competitiveness, Europe must strengthen the green transformation instead of weakening it. In that sense, the CSRD should be seen as an essential and much-needed tool to steer capital allocation towards the right direction.”

However, for another major sustainability regulation, the Corporate Sustainability Due Diligence Directive (CS3D), the situation is somewhat different. Here, the reporting requirements for the entire value chain are indeed excessive and could even lead to undesirable results: EU companies could withdraw from risky markets, jeopardizing development in poorer countries and leading to a more concentrated supplier base. CS3D needs an overhaul, according to Subran.