Smarter rules or looser standards?

A sweeping rollback of key European Union (EU) green laws is on the table, potentially relieving tens of thousands of businesses from disclosing their environmental impact and climate risks.  

Last month, the European Commission (the Commission) announced that 80 per cent of EU companies could be exempt from mandatory sustainability disclosure requirements under its eagerly anticipated Simplification Omnibus package – marking a stark shift from the EU's previously aggressive environmental stance. 

This move reflects the EU’s broader strategy under its 2024-2029 policy cycle, which prioritises economic growth over regulatory rigour. 

But can sustainability and competitiveness truly coexist without compromise? 

A step towards clarity or a compromise on control? 

The Omnibus package seeks to reduce the regulatory burden of the European Green Deal while upholding its core objectives. Key legislative proposals include postponing reporting deadlines and narrowing the scope of reporting requirements.  

Notably, the package suggests delaying the Corporate Sustainability Reporting Directive (CSRD) by two years and cutting the number of required data points by half.  

Only companies with over 1,000 employees and either €50 million in turnover or a balance sheet exceeding €25 million would be required to report. 

While the principle of double materiality — how environmental, social and governance (ESG) topics affect a company’s financial performance and how a company’s activities impact the environment and society — remains, many of the more granular reporting requirements will be scrapped or delayed. 

Additionally, the Corporate Sustainability Due Diligence Directive (CSDDD) will only apply to direct suppliers, with monitoring reduced from annually to every five years.  

The proposal also makes the EU Taxonomy voluntary for up to 85% of companies, alongside exempting 90% of importers from the Carbon Border Adjustment Mechanism (CBAM) tax.  

Despite these relaxations, the EU isn't delaying the implementation of CBAM itself. 

A mixed reaction 

The Commission claims that simplifying regulations will ease the compliance burden on small businesses, saving €6.3 billion in administrative costs and unlocking €50 billion in investment.  

These figures are compelling – especially in light of the Commission’s target to achieve a reduction of at least 25% in administrative burdens overall and at least 35% for SMEs by the end of the mandate. 

But many warn of an ESG retreat that could undermine years of corporate sustainability progress. 

“Many companies have invested heavily in ESG,” says Arnaud Bergero, ESG partner at Baker Tilly (France) and global ESG leader at Baker Tilly International.  

“This abrupt shift raises doubts. We need to help clients understand how their investments can remain valuable to their strategy.” 

Others see an opportunity.  

Gido Frühling, ESG advisory partner at Baker Tilly (Netherlands), notes that many businesses are embracing sustainability beyond mere compliance. 

"It’s clear from conversations with our clients since the Omnibus package was announced that the majority of businesses intend to continue developing their ESG strategies and reporting at their own pace," he says.  

"Less rules are a relief, but businesses recognise sustainability is essential for long-term competitiveness.” 

And in terms of meeting the targets the Commission has set itself? 

“It remains to be seen whether these new proposals truly ease the burden on small businesses,” says Mr Bergero.  

“Only businesses with more than 250 employees were required to disclose their ESG impacts under the original CSRD — these cannot be considered ‘small’ businesses.”  

Mr Frühling believes that the most significant impact on smaller businesses comes from the removal of assurance requirements, while for multinationals, a more unified approach simplifies compliance at a group level. 

“For those multinationals already addressing sustainability at the group level, they can now align their EU operations with their global approach, rather than navigating differing regulations across multiple countries.  

“But larger firms still face CSRD requirements — just with a two-year delay.” 

Leadership is key 

Despite the regulatory loosening, both Mr Bergero and Mr Frühling agree that ESG leadership remains critical for EU businesses to stay globally relevant. 

“Sustainability is a competitive differentiator,” says Mr Bergero. “Especially as powerhouses like China ramp up their ESG regulations.” 

And Mr Frühling agrees.  

“It’s not simply countries and regulators that are pushing for more and progressive changes to ensure a future-proof environment. Consumer demand for more sustainable solutions is surging – and that’s not changing.” 

A reliable framework?  

In an unpredictable global landscape, companies seek stable regulations. The Omnibus package, however, raises concerns about the EU’s reliability. 

“With the Green Deal in 2019, the EU positioned sustainability as a core pillar of competitiveness,” Mr Bergero notes.  

“Now, this rollback suggests sustainability is no longer integral to economic strategy.” 

The concern is frequent regulatory shifts may erode business confidence.  

“If political winds shift again, companies may face abrupt sustainability mandates, adding to uncertainty,” Mr Frühling cautions. 

“To remain a credible business partner, the EU must ensure policy stability— especially in ESG. 

“Competitiveness and sustainability aren’t a zero-sum game. The challenge now is ensuring these regulatory shifts don’t undercut Europe’s green leadership.” 

The proposal now heads to the European Parliament and Council for review. The Commission is pushing for swift approval, but the final timeline remains uncertain.