Is the EU Backtracking on Sustainability Regulation? Green Deal Rollbacks, Political Drivers, and SME Implications
- toby4213
- 3 days ago
- 3 min read
Introduction: EU Sustainability Regulations at a Crossroads
The European Green Deal was once celebrated as the world’s most ambitious sustainability framework, designed to make Europe climate-neutral by 2050. However, in 2025, the European Union appears to be backtracking on sustainability commitments, with key regulations delayed, weakened, or withdrawn altogether. The most high-profile example is the withdrawal of the Green Claims Directive in June 2025. This blog explores why the EU is scaling back sustainability rules, who is driving these changes, and what it means for SMEs navigating EU sustainability regulations.
The Green Deal Rollbacks: What’s Changing in EU Sustainability Policy?
Key Green Deal policies affected by recent EU backtracking include:
Green Claims Directive: Withdrawn before finalisation, removing plans for mandatory third-party verification of environmental claims.
Corporate Sustainability Due Diligence Directive (CSDDD): Scope narrowed, timelines extended.
Corporate Sustainability Reporting Directive (CSRD): Reporting obligations eased for mid-sized firms until at least 2028.
Carbon Border Adjustment Mechanism (CBAM): Adjusted with higher de minimis thresholds to reduce SME reporting burdens.
These developments signal a clear retreat from stringent EU sustainability regulations.
Why Is the EU Scaling Back Sustainability Regulations?
Political Shifts in the European Parliament
The 2024 elections saw gains for centre-right and right-wing parties (e.g. European People’s Party (EPP), European Conservatives and Reformists (ECR), Identity & Democracy (ID)). These groups argue that the Green Deal places excessive burdens on businesses and undermines European competitiveness.
Economic Pressures and SME Concerns
Europe faces economic challenges including slow growth, high inflation, and competitiveness concerns. Policymakers worry that strict ESG regulations could:
Hurt SMEs by imposing high compliance costs.
Undermine EU industries competing globally.
Business Lobbying and Funding Influence
Powerful business groups — BusinessEurope, EuroCommerce, HOTREC, Independent Retail Europe — have pushed for regulatory simplification. These lobbies are largely funded by large corporations through membership fees and national federations, although they often present arguments on behalf of SMEs - largely rhetoric rather than substance when it comes to SME opinions.
Green Deal Fatigue Among Industry Groups
Farmer protests, industrial action, and SME advocacy have highlighted frustrations with what is seen as regulatory overload and impractical climate rules.
Who Is Behind the Push for Green Deal Simplification?
European People’s Party (EPP): The largest centre-right group, advocating for a regulatory pause and SME-friendly reforms. Key figures: Manfred Weber, Markus Pieper, Pascal Arimont.
European Conservatives and Reformists (ECR) and Identity & Democracy (ID): Strongly critical of the Green Deal, citing sovereignty and competitiveness concerns.
Renew Europe: Centrist liberals, generally supportive of the Green Deal, but backing some SME relief measures.
What Does EU Sustainability Rollback Mean for SMEs?
Benefits for SMEs
Reduced compliance costs in the short term.
Delayed reporting obligations (e.g. CSRD voluntary for mid-sized firms).
No mandatory green claim verification under EU law — for now.
Risks for SMEs
Continued exposure to accusations of greenwashing without clear EU standards.
Market and investor expectations for credible sustainability practices remain high.
Likely future tightening of sustainability rules as climate pressures increase.
SME Strategy: How to Respond
Substantiate all green claims rigorously using lifecycle assessments, certifications (e.g. ISO 14021, EU Ecolabel, B Corp).
Align with voluntary ESG reporting frameworks to future-proof your business.
Monitor national sustainability regulations, as some EU countries may tighten standards individually.
Conclusion: Why SMEs Should Stay Ahead on Sustainability
While the EU is currently scaling back sustainability regulations, the direction of travel is clear: climate action and transparency will remain critical to market success. SMEs that adopt robust, evidence-based sustainability strategies will be best positioned to thrive in this evolving regulatory landscape.
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