The European Union has long been a global leader in the field of sustainable development, continuously strengthening its regulation of corporate ESG (environmental, social, and governance) standards. The emergence of regulations such as the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD) demonstrates its firm determination in this area. However, a recent announcement by the European Commission has sparked widespread attention and discussion in the industry. On January 29, 2025, the European Commission released a report titled "EU Competitiveness Guidelines" and announced the launch of a comprehensive bill called the "Omnibus Package" on February 26, aimed at revising key sustainable financial regulations.
This news has caused a huge uproar in the European sustainable finance community, sparking widespread discussions about whether the EU is about to lower its ESG development requirements.
So, why is the European Commission releasing this competitiveness guide at this time?
As the first major initiative launched by the European Commission during its 2024-2029 term, the EU Competitiveness Guidelines aim to address the issue of lagging productivity growth in Europe by promoting technological innovation, achieving economic resilience, and climate neutrality. The guide proposes a series of priorities, including narrowing the innovation gap, promoting decarbonization and energy competition, reducing dependence, and strengthening supply chain security. To this end, the EU will increase investment in fields such as artificial intelligence, quantum computing, biotechnology, robotics, and space technology, and introduce a series of new measures to accelerate the adoption and promotion of these technologies. At the same time, the EU will also support the development of key industries in Europe through measures such as revising public procurement rules.
However, despite the EU being at the forefront of promoting sustainable development, the inauguration of the new European Commission and the release of the EU Competitiveness Guidelines seem to indicate a downward trend in ESG related standards. According to the official website of the European Union, the European Commission will launch a series of comprehensive regulatory simplification plans, the first of which will focus on the three major ESG reporting legislation released in recent years, namely the Corporate Sustainability Reporting Directive (CSRD), the EU Taxonomy, and the Corporate Sustainability Due Diligence Directive (CSDDD), exploring the possibility of simplification.
According to the leaked draft text, this comprehensive bill may adjust the ESG rule system on three levels: first, establish a hierarchical regulatory system, exempt some ESG reporting obligations for small and medium-sized enterprises (SMEs), and postpone the implementation of the second phase of CSRD; The second is to increase the flexibility of transitional finance, allowing enterprises that use low-carbon natural gas and other transitional energy sources to obtain green financing, and temporarily suspending the implementation of emission accounting standards for the shipping industry; The third is to transform the mandatory provisions on supply chain human rights review in CSDDD into a "risk-based approach" and reduce the review requirements for enterprises.
This news has sparked strong reactions from participants in the financial industry. More than 200 financial industry participants, including asset owners and managers, have jointly issued a statement calling on the European Commission to maintain the integrity and ambition of the EU's sustainable financial framework in the current discussion of the "comprehensive bill" on revising key regulations. They believe that these regulations are the fundamental cornerstone of the EU's sustainable development policy framework and are crucial for promoting long-term growth. Any revision of these regulations could create regulatory uncertainty and ultimately jeopardize the EU's goal of readjusting capital to support the European Green Deal.
The EU is currently facing a dilemma: on the one hand, it needs to enhance its competitiveness to keep up with the pace of other major economies; On the other hand, we must unwaveringly adhere to the sustainable development goals. This strategic shift exposes a deep-seated contradiction within the EU: how to find a balance between maintaining sustainable development and revitalizing industrial competitiveness? This adjustment not only triggers multi-party struggles, but also tests the wisdom of policy makers.
The German Confederation of Industry and other organizations have expressed support for the EU to reduce ESG compliance costs to enhance competitiveness; However, investors such as the Nordic Pension Fund Alliance have warned that any standard regression will shake investors' confidence in the EU green bond market. Meanwhile, traditional industries such as steel and chemical are actively lobbying for more policy support. However, environmental organizations and others insist that the European Commission should not reduce the legal binding force of climate commitments.
The latest model from the European Policy Research Center shows that if existing ESG standards are maintained, the EU manufacturing industry may lose 12% of its global market share by 2030; But if regulation is excessively relaxed, an additional 120 million tons of carbon emissions will be generated annually. This delicate balance indeed tests the wisdom of policy makers.
However, the good news is that the EU Sustainable Finance Platform has recently released a comprehensive report on simplifying the EU classification system. The report recommends focusing on simplifying the "Do Not Cause Significant Harm" (DNSH) assessment and clarifying KPI calculations, proposing voluntary and simplified methods for small businesses, banks, and investors to ensure that the classification system remains practical and meets market demand. It is expected that the European Commission will review and consider these recommendations to improve regulatory consistency and promote the adoption of sustainable finance.
How will the EU find the best balance between maintaining competitiveness and promoting sustainable development in the future? We'll wait and see.