On January 29, the European Commission launched the Competitiveness Compass, a five-year strategy aimed at reinforcing the EU’s economic position in an increasingly competitive global landscape. The strategy focuses on enhancing innovation, supporting industry, and simplifying regulation to ensure Europe remains a key player on the global stage.

Why the EU Needs a Competitiveness Boost

The EU has long been a leader in sustainability, social responsibility, and regulatory oversight. However, economic indicators show that it has struggled to keep pace with major economies like the U.S. and China, particularly in technological innovation and industrial competitiveness.

The Competitiveness Compass is a direct response to these growing economic challenges. Reports such as the Draghi Report and Letta Report highlight high energy costs, excessive bureaucracy, and fragmented markets as key obstacles to European growth. Meanwhile, industry leaders and policymakers have called for reform through initiatives like the Antwerp Declaration for an Industrial Deal and the Budapest Declaration for a Competitiveness Deal.

At stake is more than just economic growth—Europe’s leadership in the green and digital transition while preserving its social market economy is on the line. The Competitiveness Compass aims to address these challenges without compromising sustainability, integrating economic resilience with climate leadership.

The Three Pillars of the Strategy

The Competitiveness Compass focuses on three key priorities:

1. Closing the Innovation Gap – The EU must increase R&D investment, support start-ups, and accelerate technology adoption. Key initiatives include an EU Start-up and Scale-up Strategy and an EU Cloud and AI Development Act.

2. Decarbonization & Competitiveness – The Clean Industrial Deal will align climate policies with economic growth, including an Affordable Energy Action Plan to lower costs.

3. Reducing Dependencies & Strengthening Security – Europe must diversify supply chains, reduce reliance on single suppliers, and enhance economic security through new trade agreements and domestic manufacturing incentives.

Key Initiatives in the Competitiveness Compass

The Competitiveness Compass introduces several key initiatives designed to boost European businesses while reinforcing the region’s commitment to sustainability and innovation:

• Regulatory Simplification – The Omnibus simplification package will streamline reporting obligations and cut red tape for businesses.

• Single Market Expansion – Removing trade and investment barriers to create a more integrated business environment.

• Strategic Investment – Establishing a Savings and Investments Union to direct European capital toward climate tech, AI, and other key sectors.

• Energy & Infrastructure Overhaul – Deploying clean energy, modernized electric grids, and transport networks to support a low-carbon economy.

• Defense & Security Boost – A White Paper on the Future of European Defense to strengthen Europe’s industrial and economic resilience.

What This Means for ESG and Sustainability Reporting

Sustainability remains a core pillar of the EU’s strategy, but the Competitiveness Compass recognizes the growing complexity and reporting burden for businesses. In response, the Commission is committed to simplifying sustainability reporting to ensure that requirements remain effective, actionable, and not overly bureaucratic.

The first of a series of Omnibus simplification packages is set to be released in February 2025 and aims streamline sustainability reporting by:

• Reducing administrative burdens by 25% for all businesses and 35% for SMEs.

• Simplifying the Corporate Sustainability Reporting Directive (CSRD) to allow companies to focus on delivering meaningful sustainability data without excessive red tape.

• Aligning reporting requirements with investment needs, ensuring that financial markets access relevant—but not redundant—ESG data.

• Preventing unnecessary trickle-down effects, ensuring that smaller companies aren’t indirectly burdened with extensive sustainability reporting due to supply chain obligations.

To refine these regulatory changes, the European Commission will host a closed-door consultation on February 6, followed by a public consultation on February 26. The agenda will cover key regulatory files, including CSRD, CSDDD, Taxonomy, CBAM, and SME-related reporting requirements.

By removing inefficiencies and redundancies, the EU aims to maintain high sustainability reporting standards while enabling businesses to focus on innovation and growth rather than excessive compliance.

Next Steps

The European Commission calls on EU institutions, national governments, and businesses to support the Competitiveness Compass. Progress will be tracked through annual reports and policy adjustments to ensure continued alignment with economic and sustainability goals.

For businesses, this means less regulatory friction, increased access to innovation funding, and clearer sustainability reporting requirements. However, while the first Omnibus simplification package is expected to introduce changes, these will most likely not take immediate effect. With reporting deadlines approaching, companies should continue preparing their sustainability statements according to current regulatory frameworks, such as the CSRD, to remain compliant and avoid disruptions.

As the EU implements this framework and details on the Omnibus simplification package emerge, businesses must remain agile, track regulatory developments, and engage in consultation opportunities. Leveraging digital tools and smart, data-driven ESG solutions will be key to ensuring compliance, maintaining competitiveness, and preparing for future regulatory shifts.