The European Commission has introduced a comprehensive package of reforms aimed at simplifying sustainability regulations, reducing administrative burdens, and accelerating Europe’s transition to a greener economy. The proposals, which focus on sustainable finance reporting, corporate due diligence, and the Carbon Border Adjustment Mechanism (CBAM), are expected to cut compliance costs for businesses while unlocking €50 billion ($52 billion) in additional public and private investment.
By refining sustainability rules and aligning them with competitiveness goals, the Commission seeks to create a more business-friendly regulatory framework that supports the European Green Deal and the broader push for climate neutrality.
Making Sustainability Reporting More Efficient
A major aspect of the reform package is the simplification of sustainability reporting obligations under the Corporate Sustainability Reporting Directive (CSRD) and the EU Taxonomy. The proposed measures aim to:
- Narrow the scope of sustainability reporting to the largest companies with the most significant environmental impact, removing around 80% of firms from CSRD requirements.
- Reduce compliance costs for smaller businesses by ensuring large corporations do not impose excessive reporting obligations on their suppliers.
- Delay reporting requirements by two years, extending the deadline to 2028 for firms initially required to report from 2026 or 2027.
- Streamline the EU Taxonomy framework by limiting mandatory reporting to large firms while allowing others to report voluntarily, providing flexibility for businesses seeking sustainable finance.
- Introduce a financial materiality threshold for reporting and reduce reporting templates by 70%, significantly cutting compliance costs.
- Simplify the ‘Do No Significant Harm’ (DNSH) criteria, making it easier for companies to assess their environmental impact and ensure alignment with EU sustainability goals.
These changes are designed to balance the need for robust environmental reporting with the practical realities faced by businesses, ensuring that sustainability efforts remain impactful without being overly burdensome.
Simplifying Corporate Due Diligence for Sustainable Business Practices
The Commission is also reforming sustainability due diligence requirements to facilitate responsible business operations without imposing excessive administrative hurdles. Key changes include:
- Focusing due diligence efforts on direct business partners, reducing the need for exhaustive value chain assessments.
- Extending the review cycle for business partners from annual to five years, easing compliance efforts while maintaining accountability.
- Enhancing harmonisation across the EU to ensure a level playing field for companies operating in multiple Member States.
- Removing EU civil liability conditions, ensuring victims of corporate non-compliance still receive full compensation while protecting companies from excessive legal risks.
- Postponing compliance deadlines for the largest companies until 2028, giving businesses more time to adapt while accelerating the publication of guidelines to 2026.
These reforms aim to make sustainability due diligence more practical and cost-effective while ensuring companies continue to uphold high environmental and social standards.
Adjusting the Carbon Border Adjustment Mechanism (CBAM) for a Fairer Transition
As part of its efforts to prevent carbon leakage and ensure fair competition, the Commission is refining the CBAM framework by:
- Exempting small importers, including SMEs and individual traders, by introducing an annual threshold of 50 tonnes per importer, reducing compliance obligations for around 182,000 businesses while still covering 99% of emissions in scope.
- Simplifying reporting requirements for companies still subject to CBAM, making it easier to calculate embedded emissions and comply with the mechanism.
- Strengthening anti-circumvention measures, ensuring the system remains effective as new sectors are integrated.
- Preparing for CBAM expansion, with additional sectors and products expected to be included in early 2026.
These adjustments aim to enhance the CBAM’s role in supporting Europe’s green transition while ensuring that climate policies remain fair and practical for businesses.
Unlocking Green Investment and Supporting Sustainable Growth
To complement regulatory simplifications, the Commission is also revising investment programmes such as InvestEU and the European Fund for Strategic Investments (EFSI) to enhance financial support for sustainable projects. The proposed changes include:
- Leveraging past investment returns to increase EU funding capacity, unlocking an estimated €50 billion in additional green investment.
- Easing access to financing for businesses, particularly in sectors linked to the green transition.
- Simplifying administrative procedures for financial intermediaries and SMEs, generating an estimated €350 million in cost savings.
With nearly 45% of InvestEU’s current operations dedicated to climate-related projects, these reforms aim to maximise the programme’s impact in driving decarbonisation, innovation, and sustainability.
Next Steps
The legislative proposals will now be reviewed by the European Parliament and the Council. The reforms to CSRD, due diligence, and CBAM will come into effect once an agreement is reached and the measures are published in the EU Official Journal.
Additionally, the draft Delegated Act amending the EU Taxonomy Regulation will be subject to public consultation before being adopted, with implementation expected at the end of the parliamentary scrutiny period.
By prioritising regulatory simplification and green investment, the European Commission is reinforcing its commitment to a sustainable and competitive European economy. These reforms mark a crucial step in ensuring that businesses can thrive while contributing to the EU’s environmental and climate objectives.
