Green deal: The line between simplification and deregulation is thin

Simplification is a traditional mantra of government action, as old as the emergence of the modern state. Following the recommendations of the Letta and Draghi reports, the European Union (EU) is now joining the trend. On February 26, the Commission presented a first "omnibus" package of measures to simplify the European Green Deal. It focuses in particular on the Corporate Sustainability Reporting Directive (CSRD), which defines how companies must communicate on their environmental, social and governance challenges and performance, and the directive on their duty of care regarding human rights and the environment.

The Council and the European Parliament have already approved the proposal to postpone the entry into force of these two directives to 2027 instead of 2025 for wave 2 of the CSRD, and to 2028 instead of 2027 for the duty of care. What follows, covering the substantive amendments proposed by the Commission, is likely to be more laborious, because, even if there is broad agreement that the Green Deal directives — and especially the delegated acts implementing them — need to be simplified, the line between simplification and deregulation is thin.

This will be a technical debate among experts, a political debate between supporters and opponents of the Green Deal, and an economic debate about the link between simplification and competitiveness. It must also be — especially in the current context — a debate about the extraterritorial regulatory power of the European Union: that capacity which allows Europe to deploy ambitious regulations beyond its borders, also known as the "Brussels Effect" since it was theorized by Anu Bradford (The Brussels Effect: How the European Union Rules the World, 2020, not yet translated into French). This effect must benefit the Green Deal regulations, and is the key to the competitiveness of European companies.

A pillar of the EU's economic influence

This regulatory power allows many European regulations, even the most stringent ones, to become the global reference standard. Essentially, for two reasons: non-European companies that must comply with them to access the single market may decide, for practical reasons, to apply them to all of their operations (the "de facto Brussels Effect"), and non-European states may draw on them for their own regulations (the "de jure Brussels Effect"). This is the case in many areas: consumer health and safety, competition law, personal data protection, the environment, and so on.

It is this capacity to shape the international legal order that makes these regulations acceptable to European companies exposed to global trade. It would be paradoxical to weaken this regulatory power — which has become one of the pillars of the EU's economic influence — at the very moment when the end of "happy globalization" is giving rise to a proliferation of unilateral decisions and norms with extraterritorial ambitions, and when Europe is reflecting on the paths and means of a genuine strategy of power and sovereignty.

Yet several proposals in the "omnibus" project are cause for puzzlement. In the CSRD, for example, the proposal to raise the threshold of companies subject to the directive from 250 to 1,000 employees would reduce the number of companies concerned by 80%.

A reversal all the more surprising in that it comes at a time when the EU is competing with the International Sustainability Standards Board to impose its corporate sustainability reporting model. Reduced to large companies only, the European standard would lose its power of attraction, including for the growing number of countries considering comparable regulations.

Following the path of harmonization

One may also question the proposals that move the duty of care directive away from the 2011 UN Guiding Principles on Business and Human Rights — for example, the proposal to limit the duty of care to a company's direct business partners only, whereas the Guiding Principles and the current version of the directive target the entire value chain. These principles have become the global voluntary standard for responsible business conduct. The directive is their first near-complete transcription into positive law. It is by remaining faithful to these principles that it can become the new global reference text, and inspire countries that are also considering integrating the duty of care into their regulations.

How can one simplify effectively without weakening this European regulatory power, which is more important than ever in the new geopolitical context? The answer is to follow the path of harmonization mapped out by the Letta and Draghi reports.

The duty of care directive and many other European regulations could, for example, provide for a single supervisory authority, rather than 27 national authorities whose doctrines take years to converge. The "omnibus" could incorporate Enrico Letta's proposal to create a European business law code — a "28th regime" that would replace national provisions or offer companies the option of a European framework, and so on.

All of these measures would simplify the rules applicable to companies, reduce costs and legal uncertainties linked to insufficient harmonization, while at the same time strengthening European regulatory power — an essential pillar of the Union's strategy of power and sovereignty.

This is a translation of the article published in Le Monde. illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.

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