EU's comprehensive plan may diminish European Union's economic edge

The EU parliament is currently engaged in a heated discussion regarding the implementation of the Sustainability Disclosure Regulation and the directives for sustainable governance and reporting. The focus is on transposing EU Directive (EU) 2022/2464 into national law, with the aim of achieving compliance by May 2025. This includes amendments to regulations on company sustainability reporting.

However, delays are occurring in related biomasse legislative packages, with industry groups demanding exemptions and streamlined procedures to avoid heavy burdens on existing energy plants. The EU economy, stagnating compared to the US and China due to a lack of competition and innovation, is closely watching these developments.

The EU's sustainable investment rules, including the EU taxonomy, corporate sustainability reporting (CSRD) and due diligence directives (CSDDD), were intended to give the EU a lead on the transition to a green economy and fill a vital data gap. However, the limit in scope of these regulations could lead to a 50% reduction of datapoints in the European Sustainability Reporting Standards.

The largest party in the EU parliament (EPP) is divided on the best way to proceed with the omnibus proposal. Some members want to go further than the original proposal, while others are concerned it goes too far. The EU commission's pledge to cut reporting burdens by 25% by the first half of the year will not be met.

The omnibus could potentially pause investment in green energy at a time when it is needed more than ever. With renewables set to meet almost half of global electricity demand, investors would have had more incentive to invest in Europe's clean sectors due to the transparency provided by the CSRD, CSDD, and EU taxonomy.

However, investors will have to continue paying for access to estimated data or rely on voluntary disclosures, which are not as accurate as mandatory measures. This disconnect between what investors and businesses want regarding climate-related disclosures and what politicians think they want is causing uncertainty over negotiations, which are set to begin in mid-July.

The Sustainability Omnibus Podcast revealed that investors and asset managers believe that limiting data points will mean only large multinationals will be covered, leaving mid-capped firms without vital emissions information. Financial regulators have spoken out on the potential financial risk the omnibus could have.

In 2024, economist Mario Draghi wrote a report on EU competitiveness and identified an annual investment gap of €800bn. The global sustainable funds had their worst quarter on record in the first quarter of 2025, with net outflows of US$8.6bn, according to asset management firm Morningstar. While the omnibus isn't the main cause of the outflows, it hasn't helped.

Brussels seems to be ignoring Europe's competitive advantage in the green transition and instead pursuing an agenda that appears to be trying to incorrectly compete on terms set by the US. Many believe that Europe does not need to follow the US; it can set its own agenda and return to being a leader in the green transition.

As the debate continues, it is crucial for the EU to find a balance between regulations and competitiveness to ensure a successful transition to a sustainable and competitive economy. The page was last updated on July 10, 2025.