EU business simplification push: Could environmental and social due diligence be at risk?

The European Commission’s (EC) simplification proposals — which create a new category of businesses with different climate and sustainability reporting obligations — have been met with mixed reactions. Some believe certain aspects represent a watering down of Europe’s accountability legislation and due diligence obligations, as well as weakening key sustainability rules. The EC hails the plans for reducing burdens facing some agri-food stakeholders.

The EC insists its simplification plans reduce the amount of red tape and costs for businesses. Small to medium-sized enterprises (SMEs) often find it difficult and expensive to follow their sustainability reporting obligations, and the EC’s proposals would reduce these burdens.

Reducing costs and bureaucracy is especially appealing as the F&B industry continues to face inflation and supply chain disruptions.

But, at the same time, policies risk being watered down, and the scope of sustainability reporting will be significantly narrowed. Concerns are mounting that businesses could avoid or dilute their environmental and social responsibilities.

Reducing administrative burdens

The EC wants to cut €400 million (US$451 million) in annual administrative costs for companies, adding to the €8 billion already targeted through earlier simplification efforts. 

It proposes a new category of small-mid caps; these measures will ease compliance obligations and free resources for growth and investment across the Single Market. According to the EC, the measures boost incentives for SMEs to scale up, digitize regulatory processes, reduce red tape, and support the Commission’s goal to cut administrative costs by 25% overall and by 35% for SMEs by the end of this mandate.

“When SMEs grow beyond 250 employees, they become large enterprises under the current rules — and face a sharp increase in compliance obligations. This “cliff-edge” can discourage growth and limit competitiveness. The EC is therefore identifying a new category of companies, small mid-caps, i.e., companies with fewer than 750 employees, and either up to €150 million in turnover or up to €129 million in total assets,” explains an EC statement.

“These small mid-caps — nearly 38,000 companies in the EU — will access for the first time certain existing SME benefits, such as specific derogations under the General Data Protection Regulation or simplified rules, such as prospectus rules  making listing of SMCs on the stock market  simpler and less costly.” 

Benefits for farmers

The EC says its broader simplification proposals are particularly beneficial for farmers across the EU who face heavy, time-consuming administrative obligations. 

The Commission has laid out a proposed set of changes to common agricultural policy rules that will relieve farmers across the bloc. 

These include easier payments for small farmers. The annual lump-sum payment limit for small farmers will rise from €1,250 (US$1.411) to €2,500 (US$2,822), and small farmers will be exempt from certain environmental rules. 

They could also benefit from payments that reward eco-friendly farming. Certified organic farms will automatically be considered as meeting some of the EU’s environmental requirements for funding, and farmers may benefit from incentives to protect peatlands and wetlands. Controls will be streamlined using satellite and technology and will be limited to one on-the-spot check per year per farm.

Farmers affected by natural disasters or animal diseases will also be supported through new crisis payments and more flexible and accessible risk management tools.

The changes could save up to €1.58 billion (US$1.7 billion) annually for farmers and €210 million (US$237 million) for national administrations while making payments, certain requirements, and crisis tools more flexible and easier to manage.