By Jim McFie, a Fellow of ICPAK
Companies in the European Union (EU) are currently navigating a complex landscape marked by several interrelated challenges. There are relatively new geopolitical tensions and trade barriers. Escalating geopolitical tensions, particularly between major global economies, have led to increased trade barriers. The United States, under President Trump, has imposed tariffs on global steel and aluminum imports and threatened further tariffs on European goods. In response, the European Union has planned retaliatory measures, creating an environment of uncertainty that hampers international trade and investment decisions.
There have been energy supply disruptions. The ongoing conflict in Ukraine has significantly affected Europe’s energy landscape. Historically reliant on Russian energy imports, the EU has faced supply constraints and soaring energy prices due to sanctions and geopolitical strife. This energy crisis has increased operational costs for businesses, particularly those in energy-intensive industries, and has contributed to a substantial trade deficit.
There is slowing global trade growth. Global trade growth has decelerated from an average of 6% (2000–2019) to 3% (2022–2024). This slowdown poses risks for European economies that are heavily reliant on exports, especially in Central Europe. The International Monetary Fund has urged these economies to implement reforms to boost productivity and eliminate internal EU trade barriers to mitigate the impact of reduced global trade.
There have been labor market challenges. A significant issue confronting European businesses is the difficulty in finding employees with the right skills. As of 2023, this was identified as the largest problem across enterprises of all sizes in the EU, hindering operational efficiency and growth. In my opinion, there are opportunities for well-qualified young Kenyans to help fill this space.
There are technological and innovation gaps. Europe’s industrial sector faces challenges in adapting to rapid technological changes. Weaknesses in transforming innovation into commercial success and fragmented financing have limited the EU’s ability to scale high-risk, breakthrough technologies. This has resulted in a static industrial structure, impeding competitiveness in emerging sectors.
There are regulatory and policy shifts. New regulations, such as those from the U.S. Securities and Exchange Commission under the Trump administration, have increased compliance burdens on sustainable investors. These changes have reduced financing for clean energy projects and made it more challenging for investors to address harmful corporate practices, thereby affecting European companies engaged in sustainability initiatives.
Collectively, these factors contribute to a challenging environment for European companies, requiring strategic adaptations to maintain competitiveness and resilience.
On 26 February 2025, the European Commission introduced a proposal to amend Directives EU 2022/2464 and EU 2024/1760 (see below), aiming to adjust the implementation timelines for corporate sustainability reporting and due diligence requirements. This initiative seeks to provide companies with additional time to comply with the new regulations, thereby reducing administrative burdens and aligning with the Commission’s broader objective of simplifying EU rules to enhance competitiveness.
The Corporate Sustainability Reporting Directive (CSRD), enacted as Directive EU 2022/2464, mandates that companies disclose information on their environmental, social, and governance (ESG) practices. The objective is to increase corporate transparency and encourage sustainable business practices across the European Union. Similarly, the Corporate Sustainability Due Diligence Directive (CSDDD), formalized as Directive EU 2024/1760, requires companies to identify and address adverse human rights and environmental impacts within their operations and supply chains. Both directives are integral to the EU’s strategy for promoting sustainable and responsible corporate behavior.
The latest European Commission proposal introduces several key changes to the existing directives:
Firstly, an extension of application dates: The proposal suggests postponing the dates by which Member States are required to apply certain provisions of the CSRD and CSDDD. Specifically, the application of CSDDD Directive 2024/1760 is proposed to be delayed by one year for the first group of companies within its scope. This extension is intended to grant companies additional time to prepare for compliance and to consider forthcoming guidelines from the Commission on fulfilling due diligence obligations practically.
Secondly transposition deadlines: In light of ongoing efforts to simplify the sustainability framework and reduce burdens on companies, the proposal includes extending the deadline for Member States to transpose CSDDD Directive 2024/1760 by one year. This extension aims to provide Member States with sufficient time to integrate the directive’s requirements into national law effectively.
Thirdly simplification measures: The proposal is part of a broader “Simplification Omnibus” initiative, which seeks to reduce bureaucratic burdens on companies, thereby enhancing Europe’s global competitiveness. The initiative aims to alleviate administrative burdens that companies argue limit their ability to compete, while maintaining the EU’s commitment to its 2050 net-zero emission targets.
What is the rationale for these amendments? The Commission’s proposal is driven by several considerations: (1) Economic competitiveness: By extending compliance deadlines and reducing the number of companies affected, the EU aims to balance its sustainability objectives with the need to maintain economic competitiveness, especially in light of global deregulatory trends. (2) Administrative burden: The proposed changes aim to alleviate bureaucratic burdens, which companies argue limit their ability to compete, while maintaining the EU’s commitment to its 2050 net-zero emission targets. (3) Stakeholder feedback: The adjustments respond to concerns from businesses and member states regarding the financial and administrative challenges posed by the original timelines. By providing additional time and simplifying requirements, the Commission aims to address these concerns effectively. What are the implications for EU Companies?The proposed amendments have several implications for companies subject to the CSRD and CSDDD: (1) Extended preparation time: Companies will have additional time to adapt their reporting and due diligence processes to meet the new requirements, allowing for a more measured and effective implementation. (2) Alignment with guidelines: The extension provides an opportunity for companies to align their compliance strategies with forthcoming guidelines from the Commission, ensuring that their efforts are in line with regulatory expectations. (3) Resource allocation: With extended deadlines, companies can allocate resources more efficiently, potentially reducing the immediate financial and operational pressures associated with rapid compliance.
The proposal will undergo the standard legislative process, requiring approval from both the European Parliament and the Council of the European Union. Stakeholders, including businesses and industry associations, are encouraged to engage in the consultation process to provide feedback and insights. Once adopted, Member States will be responsible for transposing the amended directives into national law within the revised timelines.
The European Commission’s proposal to amend Directives EU 2022/2464 and EU 2024/1760 reflects a strategic effort to balance the EU’s sustainability ambitions with the practical considerations of economic competitiveness and administrative feasibility. By extending implementation timelines and simplifying requirements, the Commission aims to support companies in their transition towards sustainable practices while ensuring that regulatory frameworks remain conducive to business operations. As the proposal progresses through the legislative process, its impact on corporate sustainability initiatives will be closely monitored by all stakeholders involved.
One day later, on 26 February 2025, the Wall Street Journal’s headline on the issue was “Europe Waters Down Flagship Climate Accounting Policy: The European Commission diluted the regulatory measures after receiving backlash from companies and member countries that say the new rules hurt competitiveness and raise costs for businesses”. The EU’s executive arm has said that the proposal is an effort to simplify demands on businesses. “This is a major step forward in creating a more favorable business environment to help EU companies grow, innovate, and create quality jobs,” the commission said, estimating the cost saving could be €6.3 billion ($6.61 billion). “By bringing our competitiveness and climate goals together, we are creating the conditions for EU businesses to thrive, attract investment, achieve our shared goals—such as the European Green Deal objectives—and unlock our full economic potential”. The move to roll back reporting requirements for companies comes amid strong criticism from countries including France and Germany as well as companies operating within the continent, who said the obligations were reducing profits and hampering trade, especially when compared with their American and Asian counterparts. Originally, companies with more than 250 employees or with a net turnover above €50 million were required to report on their environmental and social impact. Now, however, this will apply only to companies with more than 1,000 employees and at least €450 million in revenue. In making this change, approximately 80% of the companies that were required to report have now had those requirements lifted. Some sector-specific reporting guidance has also been dropped and some companies which were due to start reporting in 2026 and 2027 now will not have to do so until 2028.Additionally, under the original CSDDD guidelines, the commission called on companies to develop a transition plan to mitigate against the effects of climate change on their business. Under the new proposals, this transition plan remains in place, but is no longer an obligation to enact and so can in effect be shelved. Penalties and fines have also been lowered while the frequency of assessments has changed from annual to every five years. “The implications for businesses will vary,” said Becky Clissmann, an employee at global law firm Ashurst. “For those entities that have just published a CSRD sustainability statement, the changes leave them at a potential disadvantage to sector peers who may not yet have reported as they will have incurred costs as well as used valuable management time to produce a report. If they now fall outside the CSRD’s scope they will need to decide whether any of the data and reporting has a value for other sustainability reporting they may be required, or voluntarily decide, to do.”
The changes have been criticized by some environmental groups, who say that the moves by the commission go beyond simplification. “While there is space for simplification, today’s proposal throws Europe into reverse, erasing a decade of gains in sustainability and global competitiveness,” said Giorgia Ranzato, sustainable finance manager at Transport and Environment, a Brussels-based climate advocacy group. “If approved, the new sustainability reporting obligations will only apply to 0.02% of European companies. This will risk creating a disastrous lack of ESG data across the region: a nightmare for responsible investors and consumers. This new package guts corporate accountability,” Ranzato added.
Large U.S. companies operating in Europe have to follow the EU directives. Since starting his second term, President Trump has pushed back against bureaucracy and red tape and has taken aim at a number of climate initiatives. Worries over whether Trump would retaliate against EU directives have been widespread in Brussels. These concerns were confounded when his newly confirmed commerce secretary Howard Lutnick said he would consider “trade tools” for American companies to ensure that they would not have to comply with the regulations.
“For companies, including non-EU companies with an EU presence, that were in-scope of CSRD but not due to report until 2029, they will need to assess if they remain in scope,” said Clissmann. “The majority may now fall outside of the CSRD and will feel the benefits of these changes although they should also consider what reporting they need to do to achieve their sustainability objectives,” she added.
Should Kenya take stock of this new position in the EU?
