By Caroline Rees
March 20, 2025
The European Commission has sought to frame its ‘Omnibus Simplification Package’ as the means to help EU companies compete in the global economy by reducing the regulatory burden on them at home. Yet, as Shift has pointed out elsewhere, the Commission’s proposal would in fact be an own goal. The proposed changes to two key laws – the Corporate Sustainability Due Diligence Directive (CSDDD) and the Corporate Sustainability Reporting Directive (CSRD) – would create administrative burden while preventing companies from meeting their own interests in managing sustainability risks.
But the Commission’s technical proposals also miss the bigger political point: that the core content of the original legislation, properly understood, responds to the outcry from electorates across Europe against rising inequalities. As such, it is not simply dispensable. By undermining the legislation’s ability to meet widespread demands for action on inequalities, the Commission’s proposals would fuel the growing social backlash, political volatility and economic instability – all of which are deeply damaging to business interests. Without addressing inequality and its consequences, talk about competitiveness is pointless.
For companies to play their part in reversing this trend of widening inequality, they need the freedom to conduct risk-based due diligence. It is risk-based due diligence that enables companies to focus their resources on those parts of their operations and value chains where the risks to people (and planet) – and related risks to their business – are greatest. It is arguably the primary means through which companies and investors can help secure what they need for the long term: to bring capitalism back within the bounds of shared social norms that support human dignity; to rebuild popular confidence in the systems of democracy and market economics; and ultimately to restore social and economic stability.
Growing inequalities impact everyone
While income inequalities have declined in many of the newer EU member states since 2007, in most of the older member states they have continued to widen, mirroring trends in other parts of the world. Wealth inequality has also increased in many EU states. 2024 reports show the wealthiest 10% of adults in the region owned 67% of the wealth, while the bottom 50% own just 1.2%. The majority of states – including France, Sweden, the Netherlands and even Germany – have seen a decline in the middle class due to people sliding down the economic ladder.
History shows us that when income and wealth inequalities follow these patterns, we should expect growing populism, nationalism, protectionism and xenophobia to come close on their heels – and violence and economic crisis may follow. We need only look around us to see this starting to play out in real time.
The sentiment animating populations is one of unfairness in the face of political and economic systems they see as rigged in favor of elites, preventing them from progressing on their own merits. Surveys have shown two-thirds of respondents in major EU economies agreeing that “the main divide in our society is between ordinary citizens and the political and economic elite”.
Although some European states have relatively strong social safety nets, these are no protection from this social and political backlash. It is not the redistribution of wealth by governments that people are looking for – it is the dignity they are afforded in the first place through decent jobs and respect for their voice, their rights and their interests in the ways that business and finance (as well as governments) affect their lives. The rallying cry of the ‘gilets jaunes’ protestors in France – a state with a strong safety net, yet where objections to globalization have exceeded those in the US – was ‘dignity for all’.
This, then, is the bigger policy context in which any response to EU sustainability legislation takes place: a crisis of inequalities that is the aggregate effect of business practices that externalize costs and risks onto the most vulnerable workers and communities, depriving them of decency in their jobs and undermining dignity in their lives. All of this is incentivized by market philosophies that under-regulate such practices and prize financial returns above all else.
The CSDDD’s core social proposition – that companies should understand and address the greatest risks to people’s dignity that are connected with their business – is a direct response to the reality that grave inequalities are detrimental to both markets and societies. It was this understanding that animated the development of the international standards on human rights due diligence in the first place. As John Ruggie, the author of the UN Guiding Principles on Business and Human Rights, stated in his 2008 report to the UN: “…markets work optimally only if they are embedded within rules, customs and institutions. Markets themselves require these to survive and thrive, while society needs them to manage the adverse effects of market dynamics…”
European companies do need to be able to compete globally. But they cannot do so without the social and economic stability that right now depends on urgent action to reduce inequalities. And to achieve this, companies must play their part through the risk-based due diligence needed to identify and address the business practices in their value chains that are most harmful to people’s dignity. European leaders should reject those Omnibus proposals that would remove companies’ ability to meet this imperative.
By Caroline Rees
