Europe at a crossroads: The quiet retreat from sustainability

On 26 February 2025, the European Commission presented the Omnibus I simplification package, delaying and scaling back key sustainability and due diligence rules. 

This package reduces the number of companies legally bound by these requirements, rolling back the specific duties of companies operating in the EU to prioritise environmental sustainability and human rights. So, what does this mean in practical terms – and how did we get here?

In July 2019, president of the European Commission, Ursula Von Der Leyen, promised to launch the European Green Deal in the first 100 days of her mandate, marking it as an important pillar of her tenure. The Green Deal aims to achieve net-zero greenhouse gas emissions by 2050 and bring about economic growth without increasing resource consumption. To support this goal, the EU established the Sustainability Finance Framework (the Framework) to redirect cash flows towards sustainable activity.

One of the cornerstones of the Framework relates to rules concerning sustainability disclosures and reporting for companies, which set out to encourage companies to be transparent about the environmental impact of their business dealings. One of the seminal pieces of legislation to emerge from the Framework is the Corporate Sustainability Reporting Directive (CSRD). This requires companies to publish a report detailing the impact that their business activity has on the environment. It hopes to incentivise sustainable activity from businesses and prevent ‘green washing’ - which is where companies claim they are more sustainable than they are.

The Corporate Sustainability Due Diligence Directive (CSDDD) went a step further by requiring companies to conduct environmental and human rights due diligence with respect to their operations. This included not only their own operations but also that of their subsidiaries and collaborators across the supply chain. In the legal world, there was great buzz surrounding what the CSRD and CSDDD would require from businesses and how companies could ensure preparedness. (I co-authored an article on this topic at the firm I previously worked for, which can be accessed here.)

The initial momentum behind these regulations has slowed, however. Recent developments in Brussels suggest a major pivot from a discourse of sustainability to one of ‘competitiveness’.

Competitiveness, Omnibus and the Draghi Report

On 29 January 2025, the European Commission published their Competitiveness Compass, a roadmap that will guide the EU’s economic policy; preceded by a report from Mario Draghi on European Competitiveness. In his report, Draghi named the CSRD and CSDDD as causes of regulatory burden that carry heightened costs and complexity for businesses. He recommended streamlining the CSRD and CSDDD to lower compliance costs and ensure clearer guidance on what is required under both directives – recommendations which were subsequently adopted into the Omnibus I package.

The package contains a suite of legislative proposals that aim to simplify EU regulation and strengthen European competition on the global stage. Under the package, the deadline for companies to comply with the CSRD and CSDDD has been delayed and the number of companies required to report under the CSRD has been cut by around 80%. Additionally, due diligence obligations held by companies have been narrowed to cover only direct suppliers, rather than the entire supply chain. The loosening of regulatory responsibilities in Europe has been framed as a means to bolster European competitiveness with the United States and China. Ursula Von Der Leyen insists that the Omnibus package signifies a move toward regulatory simplification – rather than deregulation – but this perception is not shared by everyone.

Critics argue that the amendments weaken the EU’s climate agenda. Tsvetelina Kuzmanova, from the Cambridge Institute for Sustainability Leadership, expressed that Omnibus could set a ‘problematic precedent’ and the European Environment Bureau described Omnibus as a ‘trojan horse for aggressive deregulation’. A group of NGOs has filed a complaint with the European Ombudsman, claiming that the package represents a concession to ‘industry interests’ to roll back sustainability laws.

What follows?

Europe now stands at a major crossroads. There are legitimate concerns held by businesses and interest groups about the ability of companies, particularly small and medium-sized enterprises, to shoulder the compliance costs that seemingly arise from the directives. However, the journey to realising the goals set out in the EU’s Green Deal was never going to be smooth sailing, and concessions were always going to have to be made.

The options confronting the EU may not be a strict binary of either hedging Europe’s competitiveness or choosing ease of doing business over facilitating the transition towards a greener future. That said, the EU having the option of equally pleasing all sides is off the cards. It needs to decide what it stands for.