Just a few years ago, Europe's green transition seemed unstoppable. But rising inflation and cost-of-living concerns, primarily driven by high gas prices, fuelled a backlash led by business groups and conservatives, who framed green policies as burdensome and too costly.
This narrative managed to convince many. By 2023, the EU's Green Deal began to falter, and by 2024, the EU’s main objective shifted to industrial competitiveness, prompting concerns over how deregulation could be used in the name of simplification.
The EU Commission is set to unveil its long-awaited omnibus simplification package on Wednesday (26 February), a proposal aimed at easing the regulatory burden for companies while keeping the EU's climate ambitions intact.
But critics say that the omnibus is little more than a veiled attempt to unwind green reporting requirements hated by corporations.
The most significant changes in the commission’s proposal come in the form of drastic reductions to the reach of three pivotal pieces of legislation: the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD) and the so-called Taxonomy.
Under the new proposal, CSRD’s coverage is dramatically narrowed, applying only to companies with more than 1,000 employees, down from 250. If adopted, it is estimated the number of companies mandated to comply with CSRD by around 85 percent.
The EU’s due diligence rules, which hold large corporations accountable for environmental issues and human rights violations in their supply chains, which critics point out hasn't been implemented yet, would also be watered down in the omnibus proposal.
The revised proposal limits reporting requirements to direct suppliers only, a move that lawyers for the green NGO ClientEarth argue ignores “higher-risk actors further down the supply chain.”
“This is not playing to the EU’s strength,” said Jurei Yada, from E3G. “Rolling back regulations undermines the very thing the EU should be most confident in—its power to shape global norms through the single market.”
Tessa Younger, a sustainability specialist at CCLA, a fund manager for charities and religious organisations, shares similar concerns.
“The weakening of due diligence rules makes it harder to push companies to comply with climate rules,” Younger argued. “And investors rely on it to assess risk and identify opportunities.”
For her part, Heather Grabbe, senior fellow at Bruegel, a Brussels-based think tank, argued that “what’s odd about this package is that it ignores Draghi’s focus on investment and productivity”.
Referring to Mario Draghi’s report on competitiveness, which Commission president Ursula von der Leyen calls the ‘blueprint’ for a second mandate, he calls for more investment and better access to capital markets by finalising the capital market union—none of which are addressed in the omnibus package.
By reducing the scope of green reporting standards, the commission “reduces transparency,” Grabbe also said. “Understanding risks is critical for attracting the kinds of investment Draghi is talking about.”
“Draghi advocates for gold-plating EU rules by national regulators; for having common standards; and ending paper-based reporting,” she continues. “Not rolling back green reporting requirements. Any steps that reduce the level playing field for investors misses the point.”
“We need to ask how [the omnibus package] is going to improve competitiveness,” she said.
BusinessEurope, the lobby group representing large corporations in Brussels, has been a driving force behind calls to weaken the CSRD and CSDDD regulations.
"Over 60 percent of companies cite regulation as a barrier to investment," said its director general Markus J. Beyrer, claiming that green reporting requirements harmed EU industrial competitiveness.
Dutch NGO SOMO put this claim into perspective, calculating that companies lobbying against EU green directives have paid out €2.9 trillion to shareholders over the past decade, while the cost of compliance is just 0.13 percent of their annual shareholder payout.
In any case, Enrico Letta, Italy's former prime minister, tasked last year to write the book on simplification (literally), recently told EUobserver that reducing the regulatory burden isn’t about cutting the scope of existing rules, but preventing EU-wide rules from being transposed into 27 individual national laws.
In his report, Letta identified a major flaw in legislation like CSDR and CSDDD: their status as directives rather than regulations.
While EU regulations apply uniformly across member states, directives set broad EU goals while leaving it to individual countries to draft their own laws.
"The easiest and most effective step [to achieve simpler rules] is to phase out directives and move exclusively to regulations," Letta told EUobserver.
However, the omnibus package ignores this, focusing instead on reducing the scope of the directives as requested by Beyrer and others in the business-lobby.
And while excluding SMEs from reporting requirements may relieve smaller entrepreneurs, it also “undermines consistency and comparability,” said Younger.
Germany and France have both lobbied “hard” for the commission to weaken EU-wide due diligence legislation.
“At the same time, they already have their own versions,” said Grabbe. “So what will this result in? Do we end up with 27 bits of national legislation? That will only make things more complicated.”
“We need a unified due diligence law, not this patchwork of national laws,” said Ramsköld.
“We cannot compete by lowering standards,” said Julien Denormandie, France's former agriculture minister and now chief impact officer at Sweep, a sustainability data management platform, in an interview with EUobserver.
“The US has lower energy costs, and China has even fewer environmental regulations. Reducing environmental standards will not make Europe more competitive.”
Instead, corporate reporting standards and due diligence laws force exporters who want to gain access to the EU single market to adjust to EU rules, thereby creating a level playing field.
“It's one of the best tools we have to remain competitive,” Denormandie continued. “If we roll it back, and Europe competes only on price, we lose. That’s a race to the bottom, and it will hurt everyone.”
The changes proposed in Wednesday’s omnibus proposal are not final. The package still needs to be negotiated between the commission, the European Parliament, and EU member states.
The commission is pushing for a quick resolution. But the reality is that it is going to be difficult to get an inter-institutional agreement—especially with mounting opposition, not just within the commission and parliament, but also from civil society groups and investors.
At the same time, the European People’s Party (EPP) is pushing hard for the roll-back of green rules, and is the most dominant political group in Brussels, and has already signalled its willingness to collaborate with the far-right if von der Leyen's usual centre-left coalition comes out against the plans.
“I’m very worried,” said Yada. “If the EPP aligns with the ECR to push pieces of the omnibus through, the next few years could be a ‘great bargaining game’ to gut the Green Deal.”
Wester is a journalist from the Netherlands with a focus on the green economy. He joined EUobserver in September 2021. Previously he was editor-in-chief of Vice, Motherboard, a science-based website, and climate economy journalist for The Correspondent.
Wester is a journalist from the Netherlands with a focus on the green economy. He joined EUobserver in September 2021. Previously he was editor-in-chief of Vice, Motherboard, a science-based website, and climate economy journalist for The Correspondent.