In late February, the European Commission took decisive steps to streamline regulatory requirements, aiming to reduce administrative complexity and unlock new investment opportunities. The proposals focus on cutting red tape while maintaining sustainability commitments, creating a more business-friendly environment that supports growth, innovation, and job creation. By aligning competitiveness with climate objectives, the Commission seeks to enable companies to navigate sustainability requirements more efficiently without compromising on environmental and social responsibilities.
These proposals come on the heels of the report published last September titled The Future of European Competitiveness by former European Central Bank President, Mario Draghi where he outlines a comprehensive strategy for revitalizing Europe’s economic position amidst shifting global dynamics. The report highlights the EU’s declining competitiveness, largely due to slowing productivity growth, a lag in technological innovation, high energy costs, and increased geopolitical instability.
Ultimately, Draghi urges a radical shift in Europe’s approach, emphasizing that procrastination is no longer an option. If the EU does not act decisively, it risks falling further behind in an increasingly competitive and unstable global environment.
At the heart of the latest EC proposals is a targeted reduction in administrative burdens—25% across the board and up to 35% for small and medium-sized enterprises (SMEs). These measures, spanning sustainable finance reporting, due diligence, the EU Taxonomy, the carbon border adjustment mechanism (CBAM), and European investment programs, are expected to bring significant cost savings and increase regulatory efficiency. The Commission estimates that, if fully implemented, these changes could save businesses €6.3 billion annually and mobilize an additional €50 billion in public and private investment. “Simplification promised, simplification delivered,” said European Commission President Ursula von der Leyen, emphasizing the initiative’s role in supporting businesses while maintaining a clear path toward decarbonization.
Earlier this year, von der Leyen called for deeper integration of capital markets, the dismantling of barriers in the single market – so that innovative companies can operate under a single set of rules across the 27-member bloc – and a new “energy union” to permanently end the reliance on Russian gas. On capital markets, von der Leyen complained that €300bn (£254bn) of EU families’ savings are invested overseas every year. “We do not lack capital. We lack an efficient capital market that turns savings into investments, particularly for early-stage technologies that have game changing potential,” she said.
Refining Sustainability Reporting for Greater Clarity
One of the most significant changes involves sustainability reporting under the Corporate Sustainability Reporting Directive (CSRD) and the EU Taxonomy. The Commission proposes scaling back reporting obligations to focus on the largest companies—those with the most significant environmental impact. This would remove around 80% of companies from CSRD requirements, ensuring that smaller businesses are not disproportionately burdened. Mid-sized companies that remain in scope would also see their reporting deadlines postponed until 2028, giving them more time to prepare.
The EU Taxonomy, a classification system for sustainable economic activities, would undergo similar refinements. Reporting obligations would be limited to the largest companies, although those outside the formal scope could still participate voluntarily. A 70% reduction in reporting templates, along with simplified pollution criteria, is expected to make compliance more manageable. Additionally, introducing a financial materiality threshold would ensure that reporting focuses on relevant, high-impact activities rather than creating excessive administrative work.
Making Due Diligence More Practical
Sustainability due diligence requirements, which obligate companies to assess and address risks in their supply chains, are also being adjusted to reduce complexity and compliance costs. Under the proposed revisions, businesses would primarily focus their due diligence efforts on direct partners, rather than mapping their entire supply chain. The frequency of required assessments would also decrease, shifting from an annual cycle to a five-year review period, with additional reviews only as needed.
For small and medium-sized enterprises (SMEs), the proposals limit the amount of information they are required to provide as part of value chain assessments conducted by larger firms. Meanwhile, the scope of liability provisions is being refined to balance accountability with legal clarity. While victims’ rights to compensation remain intact, the revised framework aims to prevent excessive claims that could create undue financial risks for companies. The timeline for implementation is also being extended, giving the largest firms until 2028 to fully comply, while guidance and support for compliance will be made available earlier.
Reducing Complexity in Carbon Border Adjustments
The EU’s carbon border adjustment mechanism (CBAM), designed to prevent carbon leakage by applying a levy on certain imported goods, is being refined to reduce burdens on smaller importers. A new exemption threshold of 50 tonnes per importer would exclude approximately 90% of importers—mostly SMEs and individuals—while still covering over 99% of the emissions originally targeted by the mechanism. For companies that remain subject to CBAM, administrative procedures such as authorization, emissions calculation, and reporting will be simplified.
To strengthen the system’s long-term effectiveness, new measures will be introduced to prevent circumvention and ensure fair implementation. These refinements come ahead of a planned expansion of CBAM in 2026, which is expected to extend the framework to additional industries and downstream goods.
Unlocking Investment to Drive Growth
Alongside regulatory simplification, the Commission is making adjustments to key EU investment programs, including the European Fund for Strategic Investments (EFSI). These changes aim to optimize the use of available funding, redirecting returns from past investments and unused financial instruments to support new projects. The result could be an additional €50 billion in mobilized investments, with a strong focus on priority areas such as research, innovation, decarbonization, and environmental sustainability.
InvestEU, the EU’s primary risk-sharing instrument, already plays a critical role in addressing financial barriers for businesses, with nearly half of its funding supporting climate-related initiatives. Under the proposed reforms, Member States will have greater flexibility to contribute to the program and support their own businesses. Administrative requirements for financial intermediaries and SMEs will also be simplified, with expected cost savings of €350 million.
Next Steps in the Legislative Process
These proposals now move to the European Parliament and the Council for further review and approval. Certain measures, such as the postponement of CSRD reporting requirements and the revised sustainability due diligence timeline, have been prioritized to address concerns raised by businesses and stakeholders. Meanwhile, the draft Delegated Act amending the EU Taxonomy regulation will be subject to public consultation before final adoption.
By refining its regulatory approach, the European Commission is working to balance sustainability goals with economic growth, ensuring that businesses can meet compliance obligations without excessive complexity. The focus is now on implementation, with policymakers and industry stakeholders expected to collaborate in shaping the final measures.
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