What is behind the EU push for regulatory simplification?

‘Regulatory simplification’ became one of the most frequently mentioned concepts in EU policymaking discourse in the past year. Simplification is increasingly framed as a prerequisite for competitiveness, innovation and strategic autonomy.

Responding to concerns about ‘over-regulation,’ in 2025 the Commission (EC) launched a simplification agenda, with a decline in competitiveness and lack of innovation being the main targets. Its aim was to reduce regulatory burdens and compliance costs for businesses and public administrations, and to boost Europe’s competitiveness and capacity to innovate (European Commission 2025). Reports by Enrico Letta and Mario Draghi argued that regulatory complexity undermines innovation and disproportionately burdens SMEs while putting European firms at a competitive disadvantage vis-à-vis external actors. This framing was taken up by the EC and supported by major industry groups and key member states, in particular France and Germany. Calls to reduce red tape have helped legitimise regulatory relief for firms considered strategically important in Europe’s industrial and geopolitical ambitions – especially in green technologies, digital infrastructure and defence. Moreover, a growing influence of conservative and far-right political groups has reinforced pressure to ease sustainability obligations perceived as costly or restrictive, a dynamic that was visible in votes in the European Parliament on the Omnibus I package in November 2025.

Sustainability regulation was one of the first policy areas in which simplification occurred. The Omnibus I package put forward initiatives to simplify sustainability reporting obligations, corporate due diligence, the EU Taxonomy and carbon border adjustment mechanisms, among other things. The specific case of corporate sustainability reporting appears quite interesting as it was originally designed as a cornerstone of the EU green transition. The original Corporate Sustainability Reporting Directive (CSRD) launched in 2023 and the European Sustainability Reporting Standards (ESRS) were meant to improve transparency, steer capital toward sustainable activities and support the EU climate and environmental aims. However, sustainability disclosures came to be redefined less as tools for systemic transformation and more as administrative obstacles to industrial scaling, competitiveness and innovation. Under Omnibus I, mandatory reporting datapoints were reduced and requirements were streamlined, and the number of companies falling within its scope has been significantly decreased.

For banks, the implications are mixed. Simplification may reduce duplication and ease reporting, but banks also depend on corporate sustainability data to assess risks and meet investor expectations. If disclosures become limited or less comparable, data gaps may expand. And crucially, supervisory expectations on climate risk do not disappear simply because corporate reporting is eased. For supervisors, the challenge is similar, as less standardised reporting can weaken the evidence base for climate stress testing and risk monitoring.

This simplification drive is not limited to sustainability regulation. Another proposal targets digital technologies with a Digital Package, which is framed in the same competitiveness, innovation and autonomy narrative as Omnibus I. Similarly, large industrial groups have also pushed the EC to ease existing rules. The Commission launched a proposal to simplify the regulatory framework, including revisions of one of its key pillars: the AI Act. Nonetheless, some of these proposed changes risk weakening the data protection framework established by the AI Act, rather than enhancing digital competitiveness (Marinello 2025).

Easing regulatory burdens may provide short-term relief for certain entities. However, it is not guaranteed that it is a straightforward route to greater competitiveness, innovation, economic growth and a means to help Europe achieve its strategic aims.