Tsvetelina Kuzmanova / Feb 2025
Image: Shutterstock
Europe is one of several jurisdictions jumping on the ‘cutting red tape’ bandwagon, aiming to streamline ESG rules amid growing concerns over regulatory burdens. The European Commission is poised to unveil its “Omnibus package” on 26th February—a sweeping regulatory update aimed at cutting red tape by 25%. At first glance, this sounds like a win for businesses drowning in compliance costs. But dig a little deeper, and it becomes clear: what’s being framed as “simplification” leans dangerously close to full-scale deregulation that risks weakening the rules Europe needs to compete in the industries of the future.
The package will review key financial reporting laws—including the Corporate Sustainability Reporting Directive (CSRD), the EU Taxonomy, and the Corporate Sustainability Due Diligence Directive (CSDDD)—raising concerns that the EU is not just trimming excess but rolling back critical progress on corporate transparency and sustainability.
Regulation needs to be smart, not reckless. Europe does need a more efficient regulatory landscape to spur investment and innovation. But gutting ESG rules under the banner of competitiveness would be a costly mistake. Instead, the Commission should focus on targeted improvements that enhance the effectiveness of sustainability policy while maintaining the clarity, stability, and level playing field that businesses rely on.
If the EU gets this wrong, it risks undermining years of work to create a reliable framework for ESG disclosures, deterring investment in key sectors, and weakening Europe’s position in the global race for sustainable industry leadership.
Critics argue that ESG rules burden businesses, yet the reality is that sustainability reporting is a fundamental pillar of economic resilience and competitiveness. Investors demand transparency, businesses need certainty, and greenwashing is a risk no company can afford.
The CSRD ensures companies disclose material sustainability information—an essential tool for investors, risk management, and fair competition. Far from being an unnecessary burden, these rules provide the foundation for stable, well-functioning markets. Without them, European businesses risk losing the trust of global investors and falling behind in the global transition.
What’s more, many of these rules haven’t even been fully implemented yet. The CSDDD won’t take effect until 2027, and CSRD is only in its first phase, covering a limited number of companies. Rather than preemptively scrapping them, Europe should be focused on ensuring they deliver real impact.
The real issue driving ESG pushback isn’t the reporting burden—it’s the lack of a clear strategy for Europe’s sustainable growth. Regulatory sceptics—like those behind the Draghi Report—frame ESG rules as anti-competitive. But sustainability is not a trade-off; it’s the foundation of future competitiveness. The EU’s failure to fully integrate ESG policies into a broader industrial and financial strategy has left businesses without strong market incentives, making sustainability feel like a compliance headache rather than an economic driver.
Instead of gutting ESG rules, the Commission should align sustainability regulation with the upcoming Clean Industrial Deal and broader investment measures to ensure European businesses are equipped to lead in the next phase of the global economy. Right now, ESG remains a box-ticking exercise rather than a catalyst for investment and innovation.
If the EU is serious about reducing burdens on businesses, why is sustainability regulation the first target? The real barriers to investment and growth in Europe go far beyond ESG. They include slow permitting processes, a fragmented energy market, and a lack of investment in future industries. But instead of tackling these fundamental issues, some policymakers are treating ESG as a convenient scapegoat.
Scrapping ESG reporting won’t fix Europe’s competitiveness challenges—it will only create regulatory uncertainty and push companies further behind in the transition race. A race that China, the U.S., and other global players are already moving ahead in, by scaling up investment in clean industries rather than rolling back essential market rules.
The real challenge is not ESG regulation itself but how businesses are supported in implementing it. The companies calling for ESG simplification aren’t asking for a race to the bottom—they’re asking for clearer rules, better incentives, and a regulatory environment that enables them to compete globally.
Rather than weakening ESG rules, the Commission should focus on what companies actually need: clearer guidance on compliance, reducing duplication and inefficiencies; better alignment between sustainability, industrial policy, and financing measures; and stronger incentives and support for businesses—especially SMEs—to build reporting capacity and transition to sustainable business models
Cutting rules won’t help companies transition; it will only create more uncertainty, sending the message that Europe’s commitment to sustainability is negotiable. At a time when China and others are scaling clean industries, Europe cannot afford mixed signals.
Europe’s ESG rules don’t just apply to EU companies—they also set standards for multinationals operating in the EU. That’s why much of the ESG pushback is coming from those who would prefer weaker global standards.
Instead of caving to pressure, the EU should recognise this for what it is: proof that its regulatory framework is shaping global markets. With net-zero commitments facing global backlash, Europe must hold firm—not retreat.
The Omnibus package must focus on smarter, not weaker regulation. Cutting unnecessary complexity is one thing; gutting sustainability rules in a knee-jerk reaction to competitiveness concerns is another.
This is a pivotal moment for Europe’s leadership. By preserving the integrity of its sustainability frameworks, the EU can demonstrate that bold, smart regulation is not a barrier to competitiveness—it’s the foundation of Europe’s future economic strength.
