It's absolutely entirely down to CO2 emissions. Nothing else matters to the manufacturers now. An extra fraction of an MPG off the official fuel consumption figure is neither here nor there, but an extra couple of grammes per km off the official combined CO2 figure would have most emissions engineers willing to sell their own mothers these days - they're absolutely desperate!
Remember the regulations work by adding up the "combined" CO2 figures for all the cars that they have sold in a year, and dividing it by the number of cars. That gives a "fleet average" CO2 figure per car. The regulations set each company's average for 2021 and then imposes a percentage reduction target on that, so in 2022, their fleet average CO2 figure needed to be "x"% lower than it was in 2021, if not, they got fined (last time I looked, I think it was £86) per car, per gramme of CO2 over the target! In 2023, the target reduced compared to 2022, and again in 2024 and 2025 and it will do so again this year.
The manufacturers have had all the low-hanging fruit now - low rolling resistance tyres, stop-start, low viscosity oils, wet belts... This is why we're seeing smaller and smaller engines, being worked harder and harder to keep the power output. As a further kick in the &^%$, the public turned their backs on diesels (which are inherently better on CO2 but have disadvantages when it comes to air quality emissions), so the the fleet average CO2 figures actually went up slightly, as a result. They're on the ropes now!