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Years were spent on agreeing rules to hold companies accountable for their environmental and social impacts, including the EU Corporate Sustainability Due Diligence Directive (CSDDD), the Corporate Sustainability Reporting Directive (CSRD), and more. The European Commission's ‘simplification’ agenda was supposed to streamline rules and reduce the administrative burden on companies. Instead the numerous Omnibus proposals have gone beyond this, weakening sustainability rules instead.
The rules are good for all the reasons associated with protecting human rights and combating climate change. But they also give European companies a distinct advantage over rivals. Car makers have been at the forefront of this and are set to be the big winners. Many have invested in complying with the rules requiring them to identify and mitigate negative impacts on human rights and the environment within their operations and their supply chains. Mercedes and Volkswagen are good examples as the only two companies that currently publish stand alone raw materials reports, with detailed and disaggregated information on the tracing and due diligence conducted into a wide range of raw materials to ensure standards are met.
By stark contrast, many Asian car makers lag behind in establishing systems to eliminate fossil fuels, environmental harms and human rights abuses from their supply chains. The latest Lead the Charge Leaderboard highlights this - where six of the top ten companies are European automakers. Chinese electric carmakers BYD, GAC and SAIC still do not disclose their scope 3 emissions from their supply chains, whilst companies such as Toyota and Honda have not set targets to reduce these emissions. These overseas competitors also trail on human rights: SAIC’s risk assessments focus solely on business-related concerns like chip shortages, while GAC only discloses processes for business and environmental risk management. Grievance mechanisms for affected workers or communities - a requirement under CSDDD - are also largely missing, unlike among EU firms.
These same Chinese manufacturers are ramping up sales in the EU market - until now mostly through imports, and increasingly via local production in Hungary, Spain and beyond. Yet many of these companies are falling short of EU sustainability requirements. This poses not just a regulatory challenge, but a competitive one: under the Corporate Sustainability Due Diligence Directive, companies face consequences for non-compliance - including potential fines of at least 5% of annual turnover. If these rules are now weakened, we risk letting in lower-standard competition through the front door while failing to reward those who have played by the rules.
Europe’s strong sustainability standards support its industry - and its business leaders know this. A survey by We Are Europe shows business leaders see the EU regulations on disclosure and transparency as a potential geopolitical asset for Europe with 90% endorsing it. The European Central Bank has also pushed back against the Omnibus bill, warning it would cut disclosure for 80% of companies and increase financial and greenwashing risks by allowing smaller firms to report selectively.
Despite these warnings, mistaken beliefs persist - including from Germany’s new Chancellor Friedrich Merz and French President Emmanuel Macron - that Europe needs to scrap its sustainability regulation in order to be competitive. This is a short-sighted view that makes no sense in the current environment where countries, most notably the US, are also moving to protect their industry.
Some simplification - especially on reporting - is justified. But gutting the core achievements of Europe’s supply chain rules is not. For instance, narrowing the scope to direct suppliers, as the Omnibus suggests, just piles on paperwork at Tier 1 while missing serious risks deeper in the supply chain. A proper risk-based approach across the full value chain would let companies focus where harm is most likely - reducing litigation risks, bringing legal clarity and supporting those already doing due diligence right.
If Europe really wants to boost competition it should accelerate company guidance on how to interpret the rules, so those that have a competitive transparency advantage can use it quickly. Creating a central handbook to help companies comply with supply chain rules - like the Batteries and Deforestation Regulations - is a smart move. But simplifying reporting must not be used as an excuse to reopen and weaken the rules we've already agreed on.
Europe’s regulation makes its industry strong, its citizens protected and its standards something to be emulated by other countries. Undermining them now would be a gift to competitors who are further behind.
