EU Competitiveness Compass: What does this signal for regulatory simplification?

The EU Commission published today its "Competitiveness Compass" - its roadmap to regain its competitiveness and secure sustainability growth.

The Competitive Compass is the newly elected Commission's mission statement, outlining how it will promote EU competitiveness during its mandate. While the Compass does not have legal effect, it establishes the Commission’s policy direction and outlines key legislative and policy initiatives for the coming term.

The market will be watching this development closely to see how effective this will be in driving economic growth.

Companies grappling with the complexity of huge swathes of ESG regulation will also be eager to see if it will shed any light on how the EU Commission will deliver its promise of dramatically simplifying the existing complicated patchwork of EU sustainability regulations.

What is the Competitiveness Compass?

The Compass sets out how the Commission plans to address the three "pillars", or priority areas, set out in the Draghi Report, being:

• Closing the innovation gap – through proposed ‘AI Gigafactories' and ‘Apply AI' initiatives; an action plan for advanced materials, quantum, biotech, robotics and space technologies; a dedicated EU Start-up and Scale-up Strategy; and simplifying aspects of corporate law, insolvency, labour and tax law, and reducing the costs of failure;
• Establishing a joint roadmap for decarbonisation and competitiveness – through the Clean Industrial Deal; the Affordable Energy Action Plan; the Industrial Decarbonisation Accelerator Act; as well as tailor-made action plans for energy intensive sectors such as steel, metals, and chemicals; and
• Reducing excessive dependencies and increasing security – through a new range of Clean Trade and Investment Partnerships; and the review of the Public Procurement rules.

Supporting these three pillars are five "horizontal enablers" for which the Commission has identified its priority actions:

• Simplification – through its flagship proposal, the Omnibus Regulation (more on this below);
• Lowering barriers to the Single Market – launching a new Horizontal Single Market Strategy; 
• Financing competitiveness – establishing a European Savings and Investments Union;
• Promoting skills and quality jobs – setting up a Union of Skills initiative;
• Better coordination of policies at EU and national levels – introducing a Competitiveness Coordination Tool and establishing a Competitiveness Fund.

What does the Competitiveness Compass signal for the Omnibus Regulation and the simplification of the EU sustainability regulation?

One of the Commission's flagship projects supporting the "Simplification" is the Omnibus Regulation. This aims to simplify three highly complex pieces of EU sustainability regulation:

• Corporate Sustainability Reporting Directive (CSRD): requires in-scope businesses to make a significant number of mandatory disclosures on a broad range of sustainability topics (for more information, see our blog here);
• Corporate Sustainability Due Diligence Directive (CS3D): mandates in-scope businesses to conduct risk-based due diligence and take steps to manage adverse impacts on human rights and the environment (for more information, see our blogs here and here); and
• Green Taxonomy Regulation (Taxonomy Regulation): seeks to provide a "common language" for sustainable finance by establishing criteria that economic activities must fulfil to qualify as "environmentally sustainable" (for more information, see our blog here).

Given the underlying complexity of each of these frameworks, there is intense speculation on how the Commission will achieve its ambitious goal of "reducing the reporting burden by at least 25% for all companies and at least 35% for SMEs".

So far, the Compass indicates that the main levers for achieving this goal will include:

• Re-delineation of size thresholds for applicability: this involves creating a new definition of small mid-caps, which is intended to provide thousands of EU companies currently classified as "large undertakings" with a more tailored regime, in the same spirit as the simplified regulations applying to SMEs;
• Focus on usability: this includes ensuring "better alignment of the requirements with the needs of investors, proportionate timelines, financial metrics that do not discourage investments in smaller companies in transition, and obligations proportionate to the scale of activities of different companies". However, there are no concrete proposals yet on how this will be achieved;
• Addressing the trickle-down effect: this aims to prevent smaller companies from being subjected to more excessive reporting than intended by the regulations, by virtue of feeding into the reporting of another entity in their value chain. Again, there are no concrete proposals yet on how this will be achieved.

The simplification "wish list" not covered in the Competitiveness Compass

Since the announcement of the Omnibus Regulation in November 2024, the market has been buzzing with speculation about its scope. Some items that potential users have mentioned would be helpful, but which are not mentioned in the Compass, include:

• Postponement or extended transitional periods;
• Simplification of the underlying datapoints (including extra flexibility for the use of estimates where concrete data is not available);
• Promoting better alignment between each of the regulations covered by the Omnibus Regulation, and between the regulations and other parallel regimes such as SFDR;
• Adjustments to assurance requirements;
• Clearer and more practical implementation guidance (including on enforcement risks);
• Better interoperability with other global reporting frameworks (such as TCFD / ISSB).

While the Competitiveness Compass lays the groundwork for regulatory simplification, it leaves a significant number of open questions regarding the Omnibus Regulation’s final shape.

For now, the Competitiveness Compass provides a directional guide rather than a fully charted course. Its implications for EU businesses—and their legal advisors—will hopefully become clearer in the months ahead, as the details of the Omnibus Regulation emerge.