European Commission's Proposed Rollback of Sustainability Rules Sparks Outcry

Legal scholars and economists have raised serious concerns over the European Commission's (EC) proposed rollback of sustainability rules, warning that such a move could undermine corporate accountability, human rights, and environmental protections. The EC has been under pressure from corporate lobbyists to reshape rules governing how companies monitor and report their activities, with French President Emmanuel Macron and German Chancellor Friedrich Merz leading the charge against the EU’s Corporate Sustainability Due Diligence Directive (CSDDD). They argue that the regulations could make European businesses uncompetitive and have called for an EC “Omnibus Simplification Package” that would eliminate key requirements for companies to monitor their supply chains for violations and remove mandatory climate transition plans.

However, a coalition of legal and economics scholars, environmental organizations, businesses, and countries such as Sweden and Denmark have united to defend the regulations. Thom Wetzer, associate professor of law and finance at the University of Oxford, warned that removing these regulations would not reduce the regulatory burden but instead create a litigious landscape with differential implementation of national requirements. He emphasized that without guiding regulations, corporate climate transitions would be more disorderly and costly, and many European companies have already invested in compliance frameworks.

In May, Wetzer and over 30 other legal scholars sent a letter to the EC, cautioning that scrapping the regulations would introduce new financial and legal risks for companies and hinder their sustainability and climate goals. They highlighted that many European companies, including major brands like IKEA, Maersk, and Unilever, have already aligned their reporting frameworks with the regulatory package, making any changes risky and costly.

Economists have also criticized the Omnibus proposals, refuting claims that sustainability regulations harm European competitiveness. They attribute Europe’s economic challenges to factors such as the energy price crisis, declining global demand, wage stagnation, and underinvestment in public infrastructure. According to the economists, the implementation costs for sustainability regulations are minimal, and the benefits far outweigh these expenses. They warn that weakening sustainability reporting requirements could undermine crucial programs like the Clean Industrial Deal and discourage private investment in sustainable projects.

Critics have framed the Omnibus package as opportunistic, suggesting it is an attempt to mimic and placate U.S. deregulation efforts. U.S. companies have been at the forefront of lobbying efforts to undermine the CSDDD, with watchdogs claiming that investment giant BlackRock helped carve out exemptions for large financial firms. This has motivated European finance leaders to rally around the CSDDD, with over 200 financial institutions urging the EC to maintain strong sustainability standards. They warn that the Omnibus would limit investor access to reliable sustainability data and impair their ability to scale up investments for industrial decarbonization.

European finance experts have urged the EU to maintain its resolve and reputation for probity, rather than following the U.S. path of deregulation. They argue that the best response to U.S. policies is to strengthen the EU green agenda, not weaken it. Wetzer noted that the Omnibus proposals harm the European Union’s standing as a reliable regulator, suggesting that the EU should chart its own course based on its assessment of the fundamentals.

Beyond the legal and economic impacts, the environmental and human rights implications of the EC’s proposed changes have drawn significant criticism. In March, over 360 global NGOs and civil society groups issued a joint statement against the Omnibus, accusing EC President Ursula von der Leyen of deprioritizing human rights, workers’ rights, and environmental protections for the sake of dangerous deregulation. They warned that the message from Brussels is clear: industry interests come first, while people and the planet are left behind.

As the Omnibus proposal moves through the European Parliament, the key question is whether EU institutions will preserve their original ambition to guide Europe through its sustainability transition or acquiesce to corporate lobbying power. The outcome will likely have far-reaching implications for corporate accountability, human rights, and the fight against climate change.