For years, the EU has positioned itself as a global leader in sustainability, implementing assertive climate regulations that have reshaped industries. Initiatives such as the Corporate Sustainability Reporting Directive (CSRD) and the Carbon Border Adjustment Mechanism (CBAM) set high standards for businesses operating within its jurisdiction. However, as regulatory pressure mounted, industries expressed concerns about competitiveness, cost burdens, and economic feasibility. The introduction of the Green Omnibus signifies the EU’s acknowledgment of these challenges, marking a pragmatic shift in its sustainability agenda.
Regulatory Retreat or Necessary Adaptation?
The Green Omnibus package aims to ease compliance requirements for businesses, particularly concerning the CSRD, the Corporate Sustainability Due Diligence Directive (CSDDD), and EU Taxonomy rules. This decision follows increasing pressure from European businesses and trade bodies, who argue that overly complex sustainability mandates are stifling growth, innovation, and economic resilience. Additionally, a recent study found that over 60% of companies cited regulation as a barrier to investment, highlighting the significant burden of regulatory compliance on operations.
The EU’s sustainability ambitions have often clashed with economic realities. Striking a balance between stringent ESG compliance and maintaining a competitive industrial base has proven challenging, especially as global trade dynamics shift. With mounting concerns over regulatory burdens and shifting geopolitical pressures, the EU is adapting to ensure its industries remain viable while continuing to work toward long-term sustainability goals.
US Pressure and the Trump Factor
Adding to these pressures, the United States—under President Trump’s second administration—has once again pulled back from global climate commitments, including the Paris Agreement. However, the regulatory landscape in 2025 is vastly different from 2016, with ESG and climate-related policies now deeply embedded in corporate and financial systems worldwide. In a departure from previous approaches, Trump is using trade policy as leverage, pressuring the EU to relax its regulatory stance by threatening tariffs on European companies doing business in the U.S. This geopolitical maneuvering has only reinforced the EU’s need to recalibrate its sustainability framework to maintain competitiveness while preserving environmental commitments.
Lessons from the Green Omnibus
The EU’s shift offers valuable lessons:
- Avoiding Regulatory Overreach: Without considering economic feasibility, regulatory overreach can lead to unintended consequences, including industry pushback, capital flight, and operational inefficiencies.
- Adaptable Sustainability Policies: Grand commitments are less effective if businesses struggle to comply without compromising growth. Policies must be flexible to accommodate varying capacities and circumstances.
- Competitiveness in Climate Policy: Sustainable development must be pursued alongside economic stability, not at its expense. Ensuring that policies do not hinder competitiveness is crucial for long-term success.
Sustainability Without Pragmatism is Unsustainable
The EU’s course correction underscores a broader truth: sustainability without pragmatism is unsustainable. Policymakers must recognize that while climate goals are crucial, their implementation must account for economic constraints. The EU’s leadership in sustainability remains intact, but its willingness to recalibrate demonstrates an understanding that the path to a greener future must also be economically sustainable.
As the EU adjusts its stringent ESG mandates, one thing is clear: sustainability is no longer just about ambition—it’s about execution. And effective execution requires pragmatism.
By: Monaem Ben Lellahom, Group CEO & Founding Partner of Sustainable Square