The regulation pendulum in Brussels is swinging towards “simplification.” That’s how the European Commission has characterised an overhaul of its own rules, many of which the EU executive now views as an obstacle to investment and innovation.
The Commission says it will unveil new measures to cut red tape in the hope that it will boost economic output for a bloc widely seen as lagging China and the United States.
Critics, however, are warning that loosening rules would put the bloc's hard-won environmental and social gains in jeopardy. That would hurt the standard of living for European citizens and, ironically, inflict pain on European companies that have already invested time and resources to meet existing compliance requirements.
“We’re trying to play by others' rules,” Tsvetelina Kuzmanova, the EU sustainable finance lead at the Cambridge Institute for Sustainability Leadership, told The Parliament. “We’re missing the point of how the European market works, where our strengths lie, because we’re trying to catch up with what China and the US are doing.”
The EU has leaned into ESG rules — those covering a company's environmental, social and governance performance — in ways the US has not. President Donald Trump has made further unwinding of this kind of reporting central to his administration. That would ease the regulatory burden when doing business in the US, but it also leaves investors in the dark about certain aspects of a company's dealings.
The Commission has expressed confidence that its “unprecedented simplification” effort would “unlock opportunities, innovation and growth,” Maroš Šefčovič, the EU trade and economic security commissioner, told European Parliament in Strasbourg earlier this month.
Waiting for the omnibus
The full proposal will come out in pieces over the course of the year, but a published work programme recommends streamlining green reporting rules, ditching “inefficient requirements for paper formats,” and introducing an annual plan of “fitness checks” that would regularly assess the simplification process.
A so-called omnibus package, focused on easing sustainability reporting rules, is slated for release at the end of the month alongside the Clean Industrial Deal — the bloc’s industrial strategy that is supposed to marry productivity and climate policies.
EU leaders said last week they plan to revisit eleven of its 51 proposed initiatives. Regulations affecting digital and agricultural sectors may be next, followed by security and defence policy. The carbon border levy, once seen as a cornerstone of the Green Deal, may get drastically reduced. As much as 80% of EU firms could qualify for an exemption from carbon-related tax on goods coming into the single market.
The threat to green initiatives is a red flag for environmental champions, in particular. They fear reopening debate on these rules, in an era that has seen a political shift to the right less keen on climate policy if not outright hostile to it.
“The sky was the limit with the Green Deal,” Mohammed Chahim, a centre-left Dutch MEP, said during a parliamentary debate, referring to the mammoth package of climate legislation during Von der Leyen's first term. “Without safeguarding our social and environmental standards — the essence of the European way of life — we risk throwing out the baby with the bathwater.”
Directives on corporate due diligence and sustainability reporting, respectively known by their acronyms CSDDD and CSRD, may get the chop. Both bills, which were approved in parallel with the Green Deal, are meant to increase transparency around environmental damage and human rights violations along the entire supply chain of a company doing business in the EU.
Slashing these kinds of requirements could give existing EU businesses a quick boost, but possibly at the long-term cost of developing new industries that would benefit from green incentives.
“Europe is known for its strong position on sustainability,” Andreas Rasche, the associate dean at the Copenhagen Business School, told The Parliament. “We are losing our competitive edge and our ability to differentiate.”
‘Simplification’ or deregulation? It's subjective
The new political wind in Brussels is a refreshing change for BusinessEurope, a lobby group for corporate interests. It has been among the loudest voices supporting the Commission’s renewed emphasis on "simplification.”
"We wanted to come up with something constructive,” Martynas Barysas, who heads the lobby’s internal market department, told The Parliament.
An internal survey last month, which showed 60% of its members blaming the administrative burden as an obstacle to investment, led to the group's call to revisit dozens of EU laws.
The Commission has dismissed accusations that its efforts will result in a roll back of environmental standards. Climate campaigners are skeptical, however, that a mantra to “simplify” won't lead to the deregulatory death of the Green Deal.
“If you alter primary legislation, you are inevitably moving towards deregulation, as it will need to pass through Parliament,” Pietro Cesaro, a senior policy advisor at the climate think tank E3G, told The Parliament.
The Greens legislative moment is over for now, as the groundswell of support they enjoyed in the previous cycle has all but vanished in the current one. Far- and centre-right forces now have the upper-hand in forming majorities and have struck a business-first tone.
If changes do have to be made, observers like Cesaro say it would be better to make them instead to the delegated acts, which define the technicalities of how sweeping legislation is actually implemented.
Brussels has vowed to slash administrative costs by 25 percent for large companies and at least 35 percent for small- and medium-sized ones. The Commission estimates doing so could save business €37.5 billion — about one-quarter of what they spent on administrative costs in 2022, according to Eurostat data.
Critics see that more as a political calculation than an economic one. Regulations can end up picking winners and losers, meaning the work to make or slash them requires a science-based impact assessment.
Otherwise, Rasche, the Copenhagen Business School dean, said, “We are flying blind.”