The Cost of Uncertainty: Why Europe undermining its own sustainability framework will have global impacts

By Richard Gardiner, Strategic Public Policy Lead, World Benchmarking Alliance

As the European Union (EU) fumbles around re-writing its key sustainability rules, and begins deliberations on a far-reaching “Omnibus” proposal to cut and simplify these rules, one thing is becoming painfully clear: stakeholders across the board are increasingly unhappy, and no one knows what will happen next.

Companies are voicing frustration over the regulatory uncertainty, as seen in growing public complaints about the lack of clarity and consistency in the application of both the Corporate Sustainability Due Diligence Directive (CSDDD) and Corporate Sustainability Reporting Directive (CSRD). However, what many in industry fail to acknowledge is that this uncertainty is not a consequence of regulation itself, rather it is the result of political indecision and the repeated undermining of laws that were already agreed through democratic processes. The problem is not too much regulation. The problem is too much backtracking with no end in sight.

Rather than delivering predictability, the European Commission’s “simplification” agenda has deepened ambiguity. The recent inquiry by the European Ombudswoman into potential maladministration around how the Commission drew up its Omnibus proposal highlights serious concerns about transparency, process integrity, and accountability. If the process to amend existing law becomes unpredictable or opaque, then business certainty suffers, along with democratic legitimacy.

At this point, the EU faces a critical choice on how it finds an agreement on the revision of these laws. On the one hand, it can anchor the CSDDD and CSRD in well-established international standards, including the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises. On the other, it can continue down the path it is currently on of weakening obligations, shortening time horizons, and arbitrarily slashing due diligence and reporting requirements, without any substantive justification or stakeholder analysis. The latter would not lead to simplification but sabotage.

The current working logic of cutting approximately 30% of reporting requirements from the European Sustainability Reporting Standards (ESRS), as floated by the Commission, is a gimmicky catch phrase that sounds impactful in a press release. However, this figure appears to be plucked from thin air with little reason or logic behind it. It ignores the granularity already embedded in corporate disclosures and disregards the information that investors and stakeholders actually use to assess environmental, social, and governance (ESG) risks. Blanket reductions would undermine meaningful transparency and distort capital markets’ ability to price sustainability risks accurately.

For investors, the implications are stark. The weakening of CSRD and CSDDD jeopardizes their ability to meet their own disclosure requirements, both under EU law and under global frameworks. Investors are increasingly required to map portfolio-level ESG risks, engage with investee companies on sustainability impacts, and ensure alignment with net-zero and human rights commitments. This is no longer being seen as ideological but a matter of fiduciary duty.

As the Norwegian sovereign wealth fund NBIM made clear in a recent statement: regardless of the legal context, we expect companies to identify, assess, and manage ESG risks. Responsible investors are not waiting to be told to care about climate risk, supply chain labour violations, or biodiversity loss. But they do rely on stable, credible, and comparable disclosure frameworks and evidence of corporate measures to address these risks to make informed decisions.

Yet, in the EU, the credibility of the entire corporate sustainability architecture is now at risk. Stakeholders, particularly in civil society, have spent years working with institutions and business to craft the CSDDD and CSRD as the cornerstones of Europe’s sustainable economy. To see these frameworks hollowed out at the eleventh hour for short-term political expediency would not just be a policy failure, but a crisis of confidence.

It would also break with Europe’s own commitments. If the CSDDD is weakened to the point where it no longer reflects the OECD Guidelines or UNGPs, then the EU would be setting a lower bar than the very international standards it helped to shape. This would not only damage Europe’s credibility globally, but it would erode the leadership position it claims to hold in sustainable finance and human rights.

To avoid this backslide, EU policymakers should recommit to the core tenets of what would make a meaningful sustainability framework, namely:

• Mandatory human rights and environmental due diligence for large companies, with strong enforcement mechanisms;
• Value chain coverage that reflects the real-world structure of supply chains, rather than limiting due diligence to the first tier;
• Meaningful stakeholder engagement, particularly with affected communities and workers;
• Robust and comparable reporting standards, not watered-down, vague indicators.

For responsible investors, this is not just about lobbying but about stewardship. Investors must raise their voices in Brussels, EU member state capitals, and indeed globally, to push back against short-sighted deregulatory pressures. They are uniquely placed to communicate to policymakers that sustainability rules, far from being a burden, are essential infrastructure for resilient, future-proof markets.

Ultimately, Europe must learn to value predictability over populism. The Commission’s attempt to appear business-friendly through deregulation is backfiring because what business and investors want most is clarity, not chaos. Credible rules matter more than ever in times of uncertainty. And sometimes, boring and predictable regulation is better for everyone than flashy political backsliding.

Europe has built something valuable. But it will remain valuable only if it is protected. Now is not the time to blink. It is the time to double down on the commitments made and deliver a sustainable economy that works for companies, investors, workers—and the planet.