Marybeth Collins
European Commission has introduced a sweeping package of regulatory reforms aimed at reducing administrative burdens, accelerating investment, and aligning competitiveness with sustainability goals. With an estimated €6.3 billion (~$6.8 billion) in annual cost savings and a projected mobilization of €50 billion (~$54 billion) in additional public and private investment, these measures are set to reshape the EU’s business landscape while reinforcing its climate commitments.
Reducing Complexity in Sustainability Reporting
A central aspect of the reform focuses on simplifying sustainability reporting under the Corporate Sustainability Reporting Directive (CSRD) and the EU Taxonomy. Key changes include:
- 80% Reduction in CSRD Scope: Reporting requirements will now focus primarily on the largest corporations, ensuring that obligations align with companies that have the most significant environmental impact.
- Extended Deadlines: Companies initially slated for reporting in 2026 and 2027 now have until 2028 to comply, easing transition pressures.
- Streamlined Taxonomy Reporting: Smaller companies will see a significant reduction in reporting obligations, while larger firms will retain the option to voluntarily disclose sustainability data.
- Financial Materiality Thresholds: The EU Taxonomy framework will introduce financial materiality thresholds, cutting reporting templates by 70% and offering more targeted sustainability insights.
- Simplification of “Do No Significant Harm” (DNSH) Criteria: The most complex pollution prevention and chemical use criteria under the EU Taxonomy will be revised for greater clarity and efficiency.
These adjustments aim to reduce compliance costs while maintaining transparency and access to sustainable finance, fostering a more pragmatic approach to corporate ESG obligations.
Sogand Shaker, Head of Legal & Innovation at Treefera
“Simplifying compliance requirements is a positive step, as it will save businesses significant time and resources, lowering the barrier to entry for meeting regulatory standards. However, even with streamlined reporting, companies will still be required to capture and disclose detailed supply chain data – especially at the first mile – to ensure accurate insights into their environmental impact. The first mile alone accounts for 60 percent of carbon emissions, so changes to activity here will influence the entirety of their Scope 3 reporting requirements. It's critical for businesses to go beyond compliance and focus on long-term resilience – meeting regulatory standards is just the beginning. The companies that take a proactive approach to monitoring and improving their supply chains will be far better positioned to manage risk and adapt to future challenges.”
Streamlining Due Diligence for Responsible Business Practices
The Commission’s proposals also target sustainability due diligence requirements, ensuring businesses can uphold environmental and social standards without excessive red tape. Notable reforms include:
- Reduced Frequency of Partner Assessments: Large companies will now conduct due diligence assessments every five years instead of annually, except in cases requiring ad hoc reviews.
- Minimized Burdens for SMEs: Large companies will be limited in the amount of information they can demand from SMEs in their supply chains, preventing trickle-down compliance costs.
- Increased Harmonization Across the EU: A standardized approach will create a level playing field, ensuring uniform requirements across all member states.
- Extended Compliance Timeline: Large corporations will have an additional year, until July 2028, to implement due diligence measures.
- Revised Liability Rules: The removal of EU-wide civil liability conditions shifts enforcement responsibility to individual member states while preserving the right to compensation for damages caused by non-compliance.
A More Business-Friendly Carbon Border Adjustment Mechanism (CBAM)
To support fair trade and carbon neutrality, the EU’s Carbon Border Adjustment Mechanism (CBAM) is undergoing key simplifications:
- Exemption for Small Importers: Importers handling less than 50 tonnes annually will be exempt from CBAM obligations, eliminating requirements for approximately 182,000 SMEs while still covering over 99% of emissions in scope.
- Eased Compliance for Large Companies: CBAM declarants will see streamlined authorization processes and simpler embedded emissions reporting.
- Enhanced Anti-Circumvention Measures: Strengthened regulations will prevent abuse and ensure long-term CBAM effectiveness.
Looking ahead, CBAM will expand to include additional sectors and downstream goods, with legislative proposals expected in early 2026.
Unlocking €50 Billion in Sustainable Investment
The EU’s flagship investment program, InvestEU, along with other financial mechanisms, will be optimized to drive sustainable growth and innovation. Key proposals include:
- Reallocation of Past Investment Returns: Maximizing existing financial resources will unlock an estimated €50 billion (~$54 billion) for priority sectors, including decarbonization, research, and skills development.
- Expanded Funding Access for Businesses: A simplified framework will make it easier for EU member states to leverage InvestEU for national business support.
- Administrative Cost Savings: Simplified requirements are expected to generate €350 million (~$380 million) in cost reductions for financial intermediaries and SMEs.
Next Steps for Adoption
The legislative proposals now await approval from the European Parliament and the Council. Priority will be given to provisions addressing corporate disclosure deadlines under the CSRD and due diligence requirements under the Corporate Sustainability Due Diligence Directive (CSDDD). Simultaneously, the Commission will seek public feedback on adjustments to the EU Taxonomy framework before finalizing the delegated act.
