Introduction:

The European Union has historically been a pioneer in sustainability regulation, leading the way with groundbreaking initiatives like the Corporate Sustainability Due Diligence Directive (CSDDD), the Corporate Sustainability Reporting Directive (CSRD), and the EU Taxonomy. These measures aim to promote responsible corporate conduct setting a precedent for other nations. However, this leadership is now under threat.

In recent months, a growing emphasis on EU competitiveness, fueled in part by reports like the Draghi report, has led to a push for deregulation. (Despite the fact that the Draghi report was presented in this manner: “This is not about deregulation: it is about ensuring the right balance between caution and innovation, and ensuring that regulation is consistently applied within Europe”). This push has manifested in the form of the Simplification Omnibus, a package of amendments and revisions designed to ease the regulatory burden on businesses. While the goal of enhancing competitiveness is understandable, the way in which the Omnibus process has been carried out raises critical questions about its impact on the rule of law, the EU’s sustainability agenda, and its influence on aspiring EU candidate states.

This blog post will address the central question: Does the Simplification Omnibus process undermine the rule of law in the EU by weakening legal certainty, democratic legitimacy, and corporate accountability? What are the implications for EU candidate countries?

The Simplification Omnibus: Key Changes at a Glance

The  Simplification Omnibus introduces significant modifications to sustainability regulations, affecting their scope, implementation, and enforcement. Key changes include:

• CSDDD Rollbacks: The Corporate Sustainability Due Diligence Directive (CSDDD), designed to hold companies accountable for human rights and environmental impacts in their chains of activities, has faced substantial pushback. The Omnibus process proposes delayed implementation, a narrowed scope (potentially limiting due diligence to direct suppliers only), and weakened enforcement, for example by removing civil liability. As a result, companies may have reduced responsibility for addressing abuses deeper in their value chains.
• CSRD Relaxations: The Corporate Sustainability Reporting Directive (CSRD), which mandates sustainability reporting for businesses, has been weakened under the Omnibus. Key changes include higher reporting thresholds, potentially exempting smaller companies, and opt-outs for SMEs. This could significantly reduce transparency on the environmental and social performance of a large segment of the European economy.
• EU Taxonomy Revisions: The EU Taxonomy, which classifies sustainable economic activities, has been revised to reduce reporting complexity. While simplification can be beneficial, these changes risk enabling greenwashing, allowing companies to appear more sustainable than they actually are.

These changes – which remain under discussion and require further approval from the European Parliament and Council before final adoption – have not occured in a vacuum. They are partly driven by intense corporate lobbying and reflect a broader shift in the EU toward prioritizing competitiveness over sustainability. This raises concerns about the influence of special interests on policymaking and the risk of regulatory capture.

Rule of Law Analysis: Legal Certainty, Democratic Legitimacy, and Fundamental Rights

The rule of law is a cornerstone of the EU’s legal system and must be upheld in all policy decisions. The Simplification Omnibus raises concerns about whether these principles are being respected – particularly regarding legal certainty, democratic legitimacy, and fundamental rights.

 Legal Certainty and Predictability

The rule of law demands that legal frameworks be stable and predictable, allowing businesses and individuals to understand their rights and obligations. The constant revisions in the final steps of the CSDDD’s legislative process and amendments introduced by the Omnibus process create legal uncertainty, making it difficult for companies to plan for the future and invest in sustainability measures. Just for quick reminder. The CSDDD reached a provisional agreement between the European Parliament and the EU Council in late 2023. However, during the subsequent negotiations, additional concessions were made to address concerns raised by individual EU Member States. This process resulted in a ‘final compromise text,’ which was approved by the Council on 15 March 2024 and later adopted by the European Parliament in plenary on 24 April 2024. And now, with the Omnibus, we are entering a new cycle of revisions.

Frequent regulatory changes driven by business interests can undermine confidence in the legal system and create an uneven playing field. This is particularly problematic for investors who rely on clear and consistent rules when making long-term decisions.

This issue can be considered in a broader perspective. There is a growing societal expectation that businesses will be held accountable for their environmental and social impacts. The CSDDD, CSRD, and EU Taxonomy have been seen as concrete steps towards codifying this expectation into law, creating a sense of “social contract” between businesses, society and the state.Many businesses have already started to invest in systems, processes, and expertise to comply with these regulations. A significant deregulation through the Omnibus process would invalidate these investments and create a sense of unfairness. The Omnibus process, by significantly weakening these regulations, violates the principle of legitimate expectations by undermining the reasonable reliance of stakeholders on the stability and predictability of the EU legal framework.

Principle of Proportionality: Not Just About Less Regulation

The principle of proportionality requires that any regulatory measure is proportionate to the legitimate aim pursued. This is often interpreted as requiring the “least restrictive means” to achieve the objective. However, it also implies that the measure must be effective in achieving the objective.The proportionality assessment should include an analysis of whether deregulation, through the Omnibus process, would render the regulations ineffective in achieving their goals. If deregulation undermines the ability of the regulations to achieve their legitimate objectives of protecting human rights, promoting environmental sustainability, and fostering responsible business conduct, then the deregulation itself could be deemed disproportionate. Specifically, the shift away from a pragmatic, risk-based due diligence in the CSDDD to an approach which creates artificial and arbitrary limits on the extent of due diligence a company should take by restricting due diligence to direct suppliers, threatens to render due diligence exercises ineffective in addressing negative human rights impacts. Similarly, the reduction in the number of companies within the CSRD’s scope disregards critical data gaps on social sustainability, limiting the ability to identify and address human rights risks across value chains. If deregulation significantly diminishes the regulations’ capacity to deliver on these aims through such measures, then it could be argued that the deregulation itself becomes disproportionate, as it prioritizes a reduction in burden over the essential protection of fundamental values.

Democratic Legitimacy and Legislative Process

The Omnibus approach bypasses prior democratic agreements and potentially undermines the credibility of the EU’s legislative institutions. The EU’s legislative process is designed to ensure that all stakeholders have a voice in shaping policy. However, the Omnibus process appears to have been driven primarily by corporate lobbying, with limited consultation with civil society, trade unions, and environmental groups. This raises concerns about the democratic legitimacy of the changes and the potential for policies to be skewed in favor of specific interests.

Fundamental Rights and Corporate Accountability

 The CSDDD rollbacks directly impact the protection of fundamental rights. By weakening corporate responsibility for human rights abuses and environmental harms, the Omnibus compromises the ability to hold companies accountable for their impacts on individuals and communities. Reduced reporting obligations, resulting from CSRD relaxations, make it harder to track companies’ sustainability performance and hinder the right to information and transparency. Stakeholders, including consumers and investors, need access to reliable data to make informed decisions about companies’ environmental and social impact.

These changes also conflict with international frameworks, such as the UN Guiding Principles on Business and Human Rights (UNGPs), the OECD Guidelines for Multinational Enterprises, and ILO standards. These frameworks establish clear expectations for corporate responsibility, and the Omnibus risks falling short of these standards. In addition, these changes undermine the EU’s own human rights commitments.

Undermining the EU’s Influence and Setting a Dangerous Precedent for Candidate Countries

The proposed “Simplification Omnibus” that weakens the CSDDD, CSRD and EU Taxonomy is not just an internal EU matter. It poses a severe threat to the EU’s credibility as a global leader in corporate governance and responsible business conduct, especially for candidate countries like Ukraine, which are striving to align their legal frameworks with EU standards as a condition of accession.

As highlighted by the UNDP study, EU’s HREDD initiatives have been a significant driver for implementing BHR in non-EU Eastern Europe, the Western Balkans, Türkiye, and Central Asia. This drive will be weakened in these countries. In addition, the rollbacks can trigger a decline in sustainability standards across the continent.

Moreover, the rule of law is a fundamental accession criterion. However, the EU’s current actions create a problematic precedent. By weakening its own sustainability regulations and potentially undermining the rule of law, the EU risks sending an inconsistent message to candidate countries. Such compromises by the EU erode its credibility in demanding adherence to these principles from aspiring members. The EU is signaling that deregulation and prioritizing short-term competitiveness are acceptable trade-offs, potentially triggering a decline in sustainability standards across the continent. The above-mentioned UNDP study, revealed that this deregulation often shifted pressure from the state to rights-holders (including employees, consumers, and communities), rather than relieving businesses from obligations. Ukraine is the first candidate country to face Responsible Business Conduct issues in the accession process. With the evolution of the EU acquis, candidate countries are now facing an assessment of corporate sustainability during the accession process. Ukraine is the first candidate country to encounter these expectations, a departure from earlier enlargement rounds where RBC requirements were absent. Corporate sustainability considerations are now integrated across several negotiation chapters, particularly Chapter 6 (Company Law), Chapter 20 (Enterprise and Industrial Policy), and Chapter 30 (External Relations). This underscores the importance the EU places on these issues and the commitment of candidate countries, including Ukraine, to meeting these evolving standards.

If the EU weakens its standards just as Ukraine begins its journey towards alignment, it sends a devastating message: that responsible business conduct is not a top priority. This creates uncertainty for Ukrainian businesses trying to prepare for EU membership.

Conclusion

The Simplification Omnibus weakens EU sustainability governance and raises serious rule of law concerns. By prioritizing short-term competitiveness gains over long-term sustainability objectives, the EU risks undermining its credibility, harming the environment both within and beyond its borders, and compromising human rights – particularly for non-EU citizens who rely on these laws to hold EU companies accountable.

Just as Governor Miller claimed nearly 200 years ago, “Slavery is not a national evil; on the contrary, it is a national benefit,” we now hear similar arguments in the European Parliament, suggesting that competitiveness and economic growth should take precedence over the protection of human rights and the environment.

I argue that these changes weaken EU sustainability governance, contradict the EU’s commitment to sustainability, human rights, and global corporate accountability, and raise serious rule of law concerns. Beyond its borders, the Simplification Omnibus also poses challenges, especially for EU candidate countries, which are working to align their laws and policies with those of the EU. Greater legal safeguards, parliamentary scrutiny, and civil society engagement are essential to prevent further regulatory backsliding. The EU must reaffirm its commitment to the rule of law and ensure that sustainability policies are developed in a transparent, inclusive, and accountable manner.