Brussels is in the process of softening its green policies amid political and economic pressures
On February 26 the European Commission announced its proposal for an “Omnibus package” designed to simplify EU rules on how companies report their sustainability performance. The package is part of the Commission’s effort to support European business by rolling back climate and environmental regulation, in light of political and economic pressures.
What next
Subsidiary Impacts
- The prospect of higher US tariffs will further embolden states to support a more business-friendly approach to regulation.
- It is increasingly likely that the EU will push beyond 2035 its deadline to ban the sale of internal-combustion engine vehicles.
- The recent poor performances of Green parties in European elections underlines the reduced political importance of climate policy.
Analysis
The Green Deal, launched at the start of the first Von der Leyen commission, was presented as a way to accelerate the EU’s transition to a sustainable economy. By setting higher standards to reduce the EU’s environmental and particularly climate impact, it was hoped that the deal would push EU businesses to innovate and gain competitive advantage.
Pressure to soften green agenda
However, almost as soon as the first legislative proposals emerged at the start of the decade, they encountered concerns that the burden of compliance would render EU businesses less competitive.
These concerns became more critical in the wake of the 2022 energy crisis following Russia’s invasion of Ukraine. Some member states, notably France, called for a “regulatory pause” in the roll-out of the deal. In the EP, groups on the right sought to dilute if not reject many of the Commission’s proposals.
Over the course of last year, these trends were reinforced by a rightward shift in June’s EU elections and Commission-sponsored reports by former Italian premiers Enrico Letta and Mario Draghi which called for a more business-friendly approach to EU regulation (see EU: Policy priorities will shift in next Commission – August 8, 2024).
The Commission has bowed to political and economic pressures
As a result, the second Von der Leyen Commission has significantly adjusted course, promising to simplify and scale back regulation to give more weight to competitiveness.
The direction of policy was confirmed earlier last month when the EU published its Work Programme for 2025. The programme stresses the need for a “simplification” (effectively deregulation) of EU rules — a 25% reduction overall and 35% reduction for small and medium-sized businesses — with many measures being withdrawn and other scheduled for revision.
Omnibus package
The first concrete evidence of the new approach came with the publication of an Omnibus package at the end of last month. The aim of this initiative is to revise four pieces of legislation which set sustainability reporting requirements on companies operating within the EU:
- the Corporate Sustainability Reporting Directive (CSRD);
- the Corporate Sustainability Due Diligence Directives (CSDDD);
- the Taxonomy; and
- the Carbon Border Adjustment Mechanism (CBAM).
The first three of these measures were designed to provide businesses as well as investors and customers with more detailed information on their impact on the environment and climate as well as how far they were taking into account how environmental and climate risks would affect their operations.
The CBAM required companies to report on their imports of products which originated from countries without carbon pricing mechanisms. While the measures were welcomed by environmental groups and investors for providing greater transparency on corporate conduct, they were criticised by many businesses for imposing high compliance costs.
Reduced reporting requirements
The Omnibus package, which is likely to be followed up by similar measures over the course of the next five years, is designed to reduce those costs by limiting the scope of reporting.
Reforms of the CSRD will limit its application to companies with more than 1,000 employees, compared with the 250-employee threshold currently in place. This will remove about 80% of companies from the scope of the law, while establishing a voluntary standard for those companies which wish to report on their sustainability efforts.The application of reporting requirements will be postponed to 2028 for those companies not yet doing so.
The reforms to the CSDDD include an extension of the transposition deadline for the implementation of the legislation (from July 2026 to July 2027), limit the coverage of due diligence requirements to those companies which are direct partners of the reporting business, and extend the interval between assessments from one to five years.
Reforms of the Taxonomy include limiting the reporting requirement to those companies with 1,000 employees or more and a reduction of the data to be reported by 70%.
The CBAM will be revised to exempt companies that import only small volumes of the products subject to reporting requirements.The Commission aims to reduce the total number of companies covered by 90% while still capturing 99% of the total embedded emissions produced from the imports.
The Commission estimates that the changes will reduce administrative costs for business by EUR6bn (USD6.3bn) and boost investment by EUR50bn. Reports suggest that drafts of the package went much further in stripping back the existing rules, proposing the removal of all mandatory reporting requirements.
Member states and the EP might push for more deregulation
Such an option may re-emerge when the legislation is considered by member states and the EP. In the latter, the final shape of the package will depend on whether the largest group — the European People’s Party (EPP) — aligns with the centre-left and liberals or with rightist groups that have been the strongest critics of the Green Deal. Given the EPP’s recent positions, it is likely to push for a further dilution of the Commission’s proposals.
Future green deal changes
It is likely that the Commission will revisit other elements of the green deal in the future. A recently published strategy for farming appears to diverge from the “Farm to Fork” (F2F) agenda which the Commission set out as part of the Green Deal.
The new approach outlined in the Commission strategy focuses on simplifying rules and supporting farmers instead of setting environmentally friendly standards. For example, plans to tighten pesticide regulation under the F2F — which were withdrawn last year in the face of sector criticisms and opposition within the EP — have now been abandoned completely. In addition, tougher rules on labelling on nutritional quality have been dropped.
The Commission may also push back its deadline to ban the sale of internal-combustion engine vehicles from the current date of 2035; the EPP has already called for this.
The decision to delay proposals for implementing the 2040 target for carbon reduction has also been seen as a sign of the Commission backtracking on its commitments, although this may be more due to the political sensitivity of the issue in Poland — currently holding the EU presidency — where presidential elections are due in May.
