"Two fundamentally distinct costs are being blurred: the costs of regulatory complexity and the costs of becoming genuinely sustainable. While the former warrants serious attention, conveniently pairing it with the latter has created a smokescreen behind which corporate accountability for environmental harm is quietly disappearing.
The need to simplify regulation is real. Across the European business landscape, companies – especially small- and medium-sized enterprises – are weighed down by administrative burdens, overlapping rules and an often incoherent patchwork of sustainability directives. There is broad agreement that the regulatory landscape must be streamlined.
But it is here that the danger lies. Under the guise of simplification, key pillars of the EU’s sustainability agenda – such as the corporate sustainability reporting directive (CSRD) and the corporate sustainability due diligence directive (CSDDD) – are being diluted or postponed. These changes do not merely lighten paperwork, they shift the balance of responsibility and allow unsustainable practices to continue, unseen and unaccountable.
This is not an accidental consequence but a logical next step in successful lobbying. The EU’s sustainability frameworks have, paradoxically, made sustainable behaviour more costly than business as usual. What was once intended to be a tool to expose and address the worst environmental and social offenders has been transformed into a system of excessive categorisation in which companies spend more time proving they are green than actually becoming greener. The result is a system that punishes transparency more than it penalises harm.
Simplification shouldn’t mean deregulation
Over the past decade, this trajectory has suited a powerful lobby. When it became clear that outright resistance to sustainability regulation was futile, a new strategy emerged. Overwhelm the agenda with detail and drown it in procedural complexity to ensure that even the most well-intentioned companies need an army of consultants just to comply.
Once this bureaucratic machine reached its peak, the backlash was predictable: regulations were labelled as too complicated, too expensive and too ambitious. And now simplification is being used not to restore the original mission but to undo it.
At this inflection point, Europe must be very clear-eyed about what is at stake. Simplification should mean clarity, not capitulation. Reducing duplication and focusing regulation where it matters most is necessary. But weakening sustainability reporting or abandoning due diligence requirements is not simplification, it is regression. It amounts to the socialisation of sustainability risks. When companies are no longer required to bear the costs of the harm they cause, those costs do not disappear. They are passed on to public institutions, to ecosystems and, ultimately, to citizens.
This creeping shift becomes all the more troubling when viewed in the broader geopolitical and economic context. As Europe struggles to maintain its competitive edge amid rising global instability, there is growing anxiety that it is falling behind the US and China. In this atmosphere, deregulation can seem like an easy win."
But the real solutions, as articulated by Mario Draghi in his report on European competitiveness, lie elsewhere. Draghi’s analysis is clear: Europe’s future strength will depend on its ability to mobilise large-scale investment – both public and private – into the twin transitions of green and digital infrastructure. In Draghi’s framing, sustainability is not a luxury but a strategic imperative, and regulation is not the enemy of competitiveness but one of its enablers, if crafted intelligently.
The Draghi report points to a deeper truth: Europe cannot win a race to the bottom. Competing with other global powers by stripping away environmental and social safeguards is not only unsustainable, it is fundamentally un-European. Europe’s strength has always been its distinctive model of coordinated capitalism: a market system embedded within a social fabric in which rights, responsibilities and the common good shape economic decisions. This model is often slow, sometimes frustrating, but it has yielded a more resilient, equitable and cohesive society than most alternatives.
Unlike the American ethos of individual success and de-regulated growth, the European project has always aspired to be something more integrated. It sees value not just in GDP but in social cohesion, ecological stewardship and democratic governance. In this vision, regulation is not an impediment – it is the framework through which shared values are translated into action.
Avoiding externalised costs
But that vision is now under threat. If Europe backs away from its sustainability commitments under the pretext of competitiveness it will not only lose regulatory coherence, it will lose its moral and political compass. The danger is not that the current regulations are too detailed; it is that the details are being used to dismantle the original mission. Instead of refining the framework to better expose the worst practices and support the best, we are being asked to accept a hollowed-out version: one where transparency is optional and accountability is toothless.
This trajectory is also deeply unfair. Under the current regime, sustainable businesses often pay more to comply while polluters operate under the radar. This creates a perverse incentive structure where doing the right thing is more costly than ignoring environmental and social impacts. Simplifying the rules must address this imbalance. It should not mean erasing obligations but sharpening them, focusing on the real divide between green and dirty rather than obsessing over different shades of green.
What is needed now is a smarter regulatory strategy, one that reduces administrative load without sacrificing impact. Yes, reporting requirements should be streamlined, but they should also targeted where the risks are greatest. And regulation should not stop at transparency: it must include consequences and companies that cause harm must be held responsible. The true costs of environmental degradation, social exploitation and resource depletion cannot continue to be externalised.
Europe still has the opportunity to lead, not just in setting climate targets but in demonstrating that a sustainable economy is not a contradiction in terms. It is, in fact, the only viable future. But this leadership will not come from dilution. It will come from courage – from the willingness to regulate with purpose and precision, and to uphold the principles that define the European project.
In the end, the question is not whether sustainability rules are too detailed. It is whether we have the political will to enforce them in a way that is fair, focused and effective. Retreating from that challenge in the name of simplification would be a short-sighted mistake, one that Europe – and the world – cannot afford.
This opinion piece was originally published on greencentralbanking.com