A year after the Draghi report on EU competitiveness, all eyes have been on the EU’s retreat from the Green Deal in recent months. The proposed European Commission’s Omnibus simplification package has had a wide reach, impacting the number of companies affected and the information to be reported with regards to the Corporate Sustainability Reporting Directive (CSRD), the EU Taxonomy requirements, the Corporate Sustainability Due Diligence Directive (CSDDD) and the Carbon Border Adjustment Mechanism (CBAM). Other EU regulations have also been scaled back or paused, such as the EU Deforestation Regulation being delayed for a year and the freeze on the Green Claims directive. The Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) regulation is also being revised and early August 2025, the European Banking Authority (EBA) issued a "no-action letter" to the EU regulators to pause on the enforcement of new ESG disclosure requirements for banks and allow for time to align with the wider regulatory changes.
At the same time, countries are at risk of not meeting the commitments made during Paris COP21 in 2015 and all signs are pointing to an acceleration of climate change. It is indeed difficult not to notice:
- A sharp decline in biodiversity: the latest IPBES report notes that human impact has led to an unprecedented catastrophic decline in Earth's biodiversity, with an estimated 82% of wild mammal biomass lost and up to one million species threatened with extinction in the coming decades;
- Accelerated sea-level rise with rapid glacier loss of 403 gigatons per year in both Antarctica and Greenland since 2002 as per NASA’s GRACE (Gravity Recovery and Climate Experiment);
- An increase in intensity of climatic disasters: droughts, floods, fires, and the number and "violence" of tornadoes and hurricanes. NASA’s GRACE satellites revealed twice as many severe weather events in 2023 comparing to 2003-2020. These events have significantly impacted crops worldwide, with EU agricultural sector losses estimated by EIB of €28 billion a year. The adverse weather affects crops and livestock production, impacting the price of raw materials – just to name a few: hazelnut, cocoa, rice; and
- The insurance industry has evaluated the cost of climate events. Globally, insured losses from natural catastrophes amounted to $140 billion in 2024, considerably higher than the ten-year average. In the first half of 2025 alone, the cost of climate events reached $162 billion, demonstrating a clear and growing trend.
How do we explain this apparent contradiction?
First and foremost, the political context has changed since the Green Deal was launched, the war in Ukraine and the effects of the second presidency of Donald Trump have put sustainability on a lower priority. Over the summer, the European Union committed to the United States to undertake efforts to ensure that the CSDDD and the CSRD do not pose undue restrictions on transatlantic trade. In the context of CSDDD, this includes undertaking efforts to reduce administrative burden on businesses, including Small- and Medium-sized Enterprises (SMEs). The EU also plans to propose changes to the requirement for a harmonised civil liability regime for due diligence failures and to climate-transition-related obligations.
We also know that the relief focused mainly on SMEs as they are the undisputed backbone of the European economy. Their pervasive presence across all sectors and regions make them proudly a major employer and a contributor of more than half of Europe’s GDP. However, due to significant hurdles including lack of required skills and limited financing opportunities, SMEs struggle to meet “one-size-fits-all" policies.
On top of that, numerous new and wide-reaching regulations generate new reporting obligations for all target reporters. For a number of market participants, such data on biodiversity, emitted pollutants, and aspects of the circular economy for instance had never been measured and would be subject to external assurance requirement. With all these elements combined, European ESG reporting became an easy target for critics. Does this mark the beginning of a collective climate denial?
Positive signs on the horizon
A global ESG movement has been initiated, and a closer look reveals several positive signs such as:
- The evolution of the International Sustainability Standards Board (ISSB): several jurisdictions (17 already), including Brazil, Costa Rica, Sri Lanka, and Nigeria, have already announced their decision to adopt or use the standards. And 16 additional countries including Australia, Canada, and Japan are also in the process of implementing them. This momentum is supported by the ISSB’s ongoing updates to Sustainability Accounting Standards Board (SASB) standards for specific sectors and its new focus on social and nature-related disclosures, while the EU has abandoned the creation of its own sector-specific standards;
- The growing role of China: the production of renewable energy has progressed drastically overtaking the fossil fuel production for the first time in 2024. Moreover, China accounted for more than 70% of global electric car production, reaching 12.4 million units. Investment in clean power generation and storage capacity in the country grew by 48% in 2023. China is also rapidly advancing in sustainability reporting;
- A significant number of companies from the first wave of the CSRD started reporting voluntarily even before the law was transposed in countries like Spain, Germany, and Luxembourg. These larger companies were keen to demonstrate their progress towards transition to stakeholders;
- Unprecedented growth in renewable energy investment and capacity: according to the International Energy Agency (IEA), global investment in clean energy technologies is on track to reach a record $2.2 trillion in 2025, which is double the amount being spent on fossil fuels. This surge is led by solar PV, which is expected to attract $450 billion in investment this year, making it the single largest item in the global energy investment inventory; and
- Strong national policies and renewed commitments: in 2025, countries worldwide have been updating their Nationally Determined Contributions (NDCs) under the Paris Agreement. While some fall short of what's needed, many are committing to new targets. For example, the EU itself has proposed a 90% reduction in net greenhouse gas emissions by 2040, a signal that it remains committed to climate action despite its regulatory shifts.
The true path forward lies in transforming our economic models to align with planetary limits. While some will remain in a compliance-driven mindset, we must highlight and support businesses that are leading the way, proving that it is possible to generate profits while creating a positive impact. The tide is rising, a lot of companies realised after their first CSRD exercise that it had been useful to review or implement their transition plan and confirmed that the debate is now at board and decision-making level, paving the way for more change in the future. This is not about growth versus degrowth as spread by some reluctant parties, but about a new mindful strategy and business model.
Sustainable finance is still a solution
A sustainable and just transition requires new technologies, research and development, and massive investments from public and private sources. Based on the analysis by IEA and McKinsey, the global transition to a net-zero economy by 2050 would require average annual spending of €8.5 trillion. This represents an increase of about €3.2 trillion per year compared to current spending levels. While government and public funding play a substantial role in incentivising private investments, corporates and financial institutions have a dominant role to play. And pushing the reorientation of the capital flows via the sustainable finance regulation was and is still the best option to support the companies to transition.
As of today, the good news is that Europe remains a global leader in sustainable finance.
Thus, the current push for reporting simplifications is not a retreat but a necessary recalibration to ensure the framework’s effectiveness and to support corporate competitiveness. CSRD should be used to implement a clear roadmap by businesses to integrate sustainability into their core operations and provide high quality and comparable data for investors to make informed decisions.
The ultimate hope is that the current momentum will not only create a more sustainable European economy but also set a benchmark for other regions, fostering a truly global shift towards responsible business practices. However, for this to succeed, a worldwide effort must begin without any delay… and Europe should remain a leader in that space.
