On 29 January 2025, the European Commission published a communication to the European Parliament, the European Council, the Council of the EU, the European Economic and Social Committee and the Committee of the Regions, entitled “A Competitiveness Compass for the EU” (the “Competitiveness Compass”).
The Competitiveness Compass reiterates the European Commission’s desire to deliver “an unprecedented simplification effort” by reducing the costs of all administrative burdens, including reporting burdens, by at least 25% and 35% for all companies and SMEs, respectively. Although we expect this to be the first step on the road to material changes being made to the EU’s regulatory regime, details on what these changes will look like are yet to be seen.
The end of the EU sustainability reporting regime as we know it?
The Competitiveness Compass provides that its first “Simplification Omnibus package”, which will be discussed in more detail in February 2025, will cover the possible consolidation of the Corporate Sustainability Reporting Directive, Taxonomy Regulation and Corporate Sustainability Due Diligence Directive into a single Omnibus Regulation (you can read more about the background to the Omnibus Regulation here).
In particular, the Competitiveness Compass states that “the Commission will ensure better alignment of the requirements with the needs of investors, proportionate timelines, financial metrics that do not discourage investments in smaller companies in transition, and obligations proportionate to the scale of activities of different companies” and will “address the trickle-down effect to prevent smaller companies along the supply chains from being subjected in practice to excessive reporting requests that were never intended by the legislators”.
The Competitiveness Compass goes on to explain that a new definition of “small mid-caps” will be proposed – a category that is bigger than SMEs, but smaller than “large” companies” – to ensure that the costs of administrative burdens are better tailored to companies’ size.
Not just the one Omnibus
The Competitiveness Compass confirms that that there will be multiple omnibus packages to drive simplification, but does not comment on which sectors will be affected. Therefore, it is not clear whether there will be additional consequences for the EU’s sustainability regime at this stage.
What next?
We expect a more detailed proposal to be discussed, and published shortly after, the European Commission’s meeting on 26 February 2025.
CMS lawyers will continue to monitor developments and are available to answer any queries.
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