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The EU’s green brake: Slowing down, maybe reversing?

March 5, 2025

by John Duhig, Jon Rhodes & Ann Elin Hvidsten

For years, the European Union pursued its green transition agenda with unrelenting ambition, introducing a flurry of regulations – CSRD, CSDDD, CBAM – aimed at making companies greener, fairer, and more accountable. But now, with its newly unveiled ‘Simplification Omnibus’ package, the European Commission appears to be slowing down. The policy rhetoric has softened, the targets have been adjusted, and some of the most ambitious elements have been—if not outright scrapped—pushed further into the future.

Have we reached peak green policy? Are the European populists – who smell blood in the regulatory waters – about to torpedo the Green Deal?

Yes, we are seeing a very real and significant brake applied to EU climate policy.

But – at least for now – the car is not being put in reverse. Ursula Von der Leyen’s ‘European project’ still hinges on green tech, and the economy of the future, as seen from Brussels, is still painted in various shades of sustainable investment. The trick is to follow the money, as it tells a rather different story from the political spin.

Starting with what’s actually in the omnibus package, one of the biggest changes is a substantial loosening of the Corporate Sustainability Reporting Directive (CSRD). Previously, this was set to apply to around 50,000 companies. Now, it will only hit those with more than 1,000 employees, sparing tens of thousands of smaller firms from reporting their ESG credentials.

The Corporate Sustainability Due Diligence Directive (CSDDD), meanwhile, has been watered down so that companies will only be required to check up on their direct suppliers, rather than their entire supply chains. The EU’s Carbon Border Adjustment Mechanism (CBAM) – a key tool designed to tax carbon-intensive imports – has also been tweaked so that firms importing less than 50 metric tonnes per year are off the hook.

A more manageable burden, with much already committed

From a purely regulatory standpoint, these are significant shifts. The CSRD alone was set to become one of the biggest corporate reporting exercises ever undertaken. Now, it is a more manageable burden, especially for mid-sized businesses. It’s an easing of pressure, and a sign that policymakers are more concerned about competitiveness and industry grumblings than they were a few years ago.

However, the EU is still investing heavily in the green transition, and the overarching direction of policy remains the same. It is simply that, after a period of breakneck legislative expansion, the focus is shifting towards implementation, realism and a certain degree of political appeasement.

If you really want to know where the EU’s heart lies, look at the investments. In the last five years, the EU has committed to substantial funding to support the green transition. The European Green Deal itself aims to mobilise €520 billion annually from 2021 to 2030 to achieve its sustainability goals.

The European Investment Bank (EIB), rebranded as the EU’s climate bank, has pledged to align all its financing activities with the goals of the Paris Agreement. In 2023 alone, EU countries invested almost €110 billion in renewable energy generation, reflecting a significant shift towards clean energy. These figures underscore the EU’s commitment to the green transition, with substantial investments in renewables, battery technology and hydrogen projects.

The EU Clean Industrial Deal (CID), announced on the same day as the Simplification Package, demonstrates that the EU’s green ambition has not been significantly  diluted and underscores a new emphasis on green-based economic growth.

The CID aims to mobilise more than €100 billion to support EU-made clean manufacturing. This includes a new Industrial Decarbonisation Bank, strengthening the EU Innovation Fund and using revenues from the Emissions Trading System.

Furthermore, amendments to the InvestEU Regulation will increase its risk-bearing capacity, mobilising up to €50 billion in additional private and public investment. This reflects a shift towards leveraging the green transition as a driver of economic prosperity, ensuring that Europe remains a global leader in sustainable industries.

Upholding investment certainty, pragmatically

The reality is that large-scale investments in clean technology rely on regulatory certainty. Investors, whether they are backing offshore wind farms, green hydrogen projects, or electric vehicle supply chains, have done so with the expectation that EU policies will continue to favour sustainability.

If Brussels were to perform a full-scale reversal – if it were to seek to dismantle its green regulatory framework – this would throw financial markets into chaos and spook precisely the kind of capital that Europe needs to maintain its competitive edge.

Put simply: when you’ve spent years designing an economic transition and throwing money at it, you don’t just abandon it overnight. There are too many vested interests – corporate, financial, and political – ensuring that the green transformation remains on track, even if it takes a slightly more pragmatic route.

Of course, part of this shift is political and presentational. The EU is not immune to the rightward drift seen across much of the Continent. Farmers are protesting against excessive regulation, industrial lobbies are making their voices heard and the rise of populist parties has made policymakers nervous.

This is why the omnibus package is a compromise. It trims excesses without damaging the core. It tells businesses that, yes, Brussels is listening to their concerns. But it also reassures investors that, no, the EU isn’t going to suddenly embrace fossil fuels and throw its climate commitments in the bin. It is the usual Brussels two-step: adjusting the pace while keeping the overall direction intact.

Of course, MEPs and member states may have their own ideas. The Commission expects – or perhaps hopes – that the Parliament and Council will support its Omnibus proposal. However, it remains to be seen whether that will happen or if centre-right, conservative, and far-right MEPs will push to further dilute the existing legislation.

What should businesses do?

The European regulatory outlook is evolving, and we hear constantly from companies we work with about the need to stay ahead of potential changes to avoid costly missteps.

Those who assume that sustainability commitments can be quietly dropped may find themselves wrong-footed if investor sentiment, consumer expectations and future EU policy reaffirm the long-term direction of the transition. Likewise, those who invest too aggressively in response to past targets may find themselves burdened with unnecessary costs.

For those hoping for a wholesale unwinding of green legislation, the omnibus package is unlikely to be the victory they seek. The EU is still betting on the green transition as the backbone of its economic strategy. Its industrial policy still revolves around clean technology, as evidenced by the Clean Industrial Deal and its substantial funding. Its financial commitments are still enormous.

Yes, we are seeing a recalibration, a moment of reflection after a particularly intense legislative phase. But this is not a U-turn.

The direction of travel is the same. Just don’t expect it to be quite as fast – or quite as loud – as it once was.

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