Towards simplification of sustainability and investment

In her Special Address at the World Economic Forum in Davos in January, Von der Leyen highlighted the need for Europe to "shift gears" given this era of "harsh geostrategic competition"; a need that has intensified given recent events. In the following weeks, the European Commission presented its action plan for the next five years—the EU Competitiveness Compass—and the 2025 Work Programme, defining an ambitious roadmap with a very tight timetable.

In its session of February 26, the European Commission started to implement its approved action plan:

• Various proposals to simplify legislation in the area of sustainability and European investment programs.
• A short-term strategy proposal to enable EU industry to regain competitiveness while decarbonizing—the Clean Industrial Deal—together with an Action Plan for Affordable Energy to address the high prices and high energy costs for homes and industry.

Simplification measures to boost competitiveness

"Regulatory burden has become a brake on Europe’s competitiveness". The complexity and duration of administrative procedures and procedures for obtaining permits makes the EU less attractive for investment than other regions. Therefore, the EU proposes:

• To reduce companies’ reporting obligations by 25%, raising this threshold to 35% for SMEs, by implementing various omnibus regulations.
• To simplify and expedite procedures for accessing EU funds and obtaining administrative decisions.
• To use digital and standardized formats whenever possible and to promote a new tool—the European business wallet—to digitalize the interaction between companies and public administrations.

In the communication "A simpler and faster Europe", the Commission gives details of its strategy for improving application of EU regulations, simplifying them and reducing the administrative burden; it also clarifies  that the reduction of red tape will not be limited to reporting obligations.

Proposals under the first regulatory simplification package

On February 26, the Commission approved a proposal for a regulatory package to implement two simplification measures included in its work program for the first quarter of 2025: Omnibus I and Omnibus II. Omnibus I focuses on simplifying sustainability reporting and due diligence, and on reviewing the requirements of the Carbon Border Adjustment Mechanism (CBAM). Omnibus II focuses on simplifying investment. We will refer to this package as the "Proposal". 

The Proposal, for which the Commission requested priority processing from the parliament and the council, includes:

• A directive that would delay application of the Directive on corporate sustainability reporting (2022/2464/EU)—the "CSRD Directive"—and the Directive on corporate sustainability due diligence (2024/1760/EU)—the "CS3D Directive".
• A directive amending requirements concerning the sustainability and due diligence directives reforming the CSRD Directive, the CS3D Directive, the Accounting Directive (2013/34/EU) and the Audit Directive (2006/43/EC). 
• A delegated act amending Commission Delegated Regulation 2021/2178/EU (the technical standards of article 8 of the Taxonomy Regulation), Climate Delegated Act (2021/2139/EU) and Environmental Delegated Act (2023/2486/EU).
• A regulation amending the CBAM Regulation (2023/956/EU).
• A regulation simplifying the European investment programs.

Key aspects of the Proposal

• Simplification of sustainability information

The objective is to reduce the information requirements imposed on companies subject to the CSRD Directive and trickle-down effects for SMEs. The number of undertakings subject to mandatory sustainability reporting requirements would be reduced by about 80%.

• Amendment of CS3D Directive

The objective is:

• To give more time to Member States and companies to transpose the CS3D Directive and prepare their risk management systems.
• To reduce the administrative burden and costs for companies, minimizing the impact on European companies’ competitiveness, compared to other regions that do not yet have similar regulations.
• To reinforce harmonization of the code of conduct established in the CS3D Directive to ensure greater uniformity in its transposition and alignment with the CSRD Directive.

• Reviewing CBAM

The CBAM is a price-adjustment tool designed to mitigate the risk of carbon leakage, which occurs when companies based in the EU move production to countries with less stringent climate policies or when EU products are replaced by imports with higher carbon footprints.

The Proposal introduces significant changes in its regulation to simplify processes for importing companies and reduce red tape. We highlight the exemption on companies that import less than 50 tons per year of products subject to the CBAM; this will mainly benefit SMEs and companies making occasional importations. The Commission estimates that this measure will spare 90% of concerned companies from CBAM obligations, while still covering 99% of the C02 emissions. 

• Simplification of use of various investment programs

The current structure of the European economy hinders (i) the creation and growth of startups promoting disruptive innovation, and (ii) investment in the green transition. Therefore, the Commission wants to mobilize more private investment and review the use of public funds, so companies have the capital required to handle the double transition (digital and green).

The Proposal amends various regulations to simplify and optimize the use of various investment programs, including InvestEU, the European fund for strategic investments (EFSI) and inherited financial instruments.