The just-released Competitiveness Compass for Europe

The European Commission President Ursula von der Leyen announced in her State of the European Union Speech of 2023 that she had asked Italian Prime Minister Mario Draghi to prepare a report on the future of European Competitiveness.

The Draghi report, released in September 2024, looks at the challenges faced by the industry and companies in the Single Market. It describes why Europe will no longer be able to rely on many of the factors that have supported growth in the past, and lays out a diagnosis and recommendations to put Europe onto a different trajectory, as it pursues inclusive economic growth.

Building on the Draghi report, President von der Leyen announced on 27 November 2024 that the European Commission’s first major initiative (in its 2024 - 2029 mandate) would be to compile a Competitiveness Compass. This Compass would drive the European Commission’s work ahead.

The Competitiveness Compass for Europe was released on Wednesday 29 January 2025. You can find it here, and the accompanying factsheet here.

Human Level’s Take:

• The European Commission has decided that there are three areas of priority for the EU to maintain its competitiveness, building on the Draghi report. These are (1) closing the innovation gap, (2) a joint roadmap for decarbonisation and competitiveness, and (3) reducing excessive dependencies and increasing security.
  

• There are five cross-cutting activities that underpin these three areas of priority: (1) simplification by drastically reducing the regulatory and administrative burden on firms, (2) lowering barriers to the Single Market, (3) financing competitiveness, (4) promoting skills and quality jobs and (5) better coordination of policies at EU and national level.
  

• All the talk right now in our field is on the first cross-cutting activity: simplification. The Commission notes in the Compass that the first priority will be the first Omnibus, the first of a series of Simplification Omnibus packages. It provides that this first Omnibus will “cover a far-reaching simplification in the fields of sustainable finance reporting, sustainability due diligence and taxonomy.” Of particular note, due diligence is explicitly called out - in contrast to previous discussions that the simplification could focus on reporting and leave out the due diligence duty (the CSDDD).
  

• The Compass speaks about the Commission delivering “an unprecedented simplification effort”, with the first step taking place next month with the first-ever Commissioner for Implementation and Simplification coordinating the Commission’s work steering a screening of the EU laws “to identify ways to simplify, consolidate and codify legislation as needed.”
  

• Companies, our box above says it all. Now is the time to weigh in on this simplification process to ensure that it remains grounded in soft law frameworks, is based on company’s due diligence practice, and is based on input from meaningful engagement with experts, practitioners, companies and rights-holders. Now is not the time for a race to the bottom. Long-term competitiveness also demands it!‍

Some key highlights:

• The vision of the Competitiveness Compass: The vision of the European Commission is to establish competitiveness as one of the EU’s overarching principles. It seeks to provide a new framework to rekindle economic productivity and secure the EU’s competitive edge. It seeks to build on the recommendations set out in Mario Draghi’s report on the future of European competitiveness. It is intended to steer the EU’s work on competitiveness over the next five years, over the course of the European Commission’s mandate. The Compass makes clear that the EU builds on a strong system of rights and values, a Single Market, top-notch infrastructure and a skilled workforce. As we are in a challenging and increasingly competitive world, the Compass seeks to put forward what must be done to ensure Europe keeps pace with other major economies. A key vision for the Compass is to set a path for Europe to become the place where future technologies and clean products are invented, manufactured, and put on the market - while looking to secure the EU’s climate neutrality.
• Three pillars to boost competitiveness: The Draghi report had identified three priorities to boost competitiveness in the EU: (1) closing the innovation gap, (2) a joint roadmap for decarbonisation and competitiveness, and (3) reducing excessive dependencies and increasing security. The Compass builds on these and sets out an approach to translate these into reality. When it comes to innovation, the Compass makes clear that the EU must close the innovation gap by creating an environment where innovative start-ups, effective industrial leadership and the diffusion of technologies across businesses thrive. This entails concrete initiatives from the Commission related to AI and technology. When it comes to decarbonisation and competitiveness, the EU will seek to bring down high and volatile energy prices and set out a competitiveness-driven approach to decarbonisation. It will also launch action plans for energy intensive sectors, such as steel, metals, and chemicals. When it comes to security and resilience, the EU will seek to reduce dependencies and increase its resilience and security by continuing to build trade partnerships with economies around the world. This includes helping secure a supply of raw materials, clean energy, sustainable transport fuels, and clean tech from across the world, as well as reviewing public procurement rules to introduce a European preference in public procurement for critical sectors and technologies.
• Five cross-cutting activities: The Compass puts forward five horizontal enablers that will underpin these three pillars. These are (1) simplification by drastically reducing the regulatory and administrative burden on firms, (2) lowering barriers to the Single Market, (3) financing competitiveness, (4) promoting skills and quality jobs and (5) better coordination of policies at EU and national level. When it comes to simplification, the Compass states that regulatory burden has become a brake on Europe’s competitiveness, and that regulation must be proportionate, stable, coherent and technology neutral. It explains how the first-ever Commissioner for Implementation and Simplification will coordinate the Commission’s work in this area. The role of this new Commissioner will be to steer a screening of the EU acquis to identify ways to simplify, consolidate and codify legislation as needed. The Compass provides that simplification must be informed by an understanding of the practical operation of value chains and with a regulatory system based on trust and incentives rather than detailed control in mind. The Compass makes clear that this simplification will start next month with the first of a series of Simplification Omnibus packages. This first Omnibus will, among others, “cover a far-reaching simplification in the fields of sustainable finance reporting, sustainability due diligence and taxonomy.” (See excerpt below)
  

‍Relevant excerpt:

Excerpt of Competitiveness Compass, pp. 16 - 18 (footnotes removed, emphasis added which differs from original bolding)

2.1. Simpler, lighter, faster: ensuring that EU regulation is fit for competitiveness

Regulatory burden has become a brake on Europe’s competitiveness. Despite the EU’s advanced better regulation policy, for two out of three companies this burden is the key obstacle to long-term investment. Many signal that the complexity, variety, and duration of permitting and administrative procedures make Europe a less attractive location for investment, compared to other regions. Restoring Europe’s competitiveness requires going much further than before in cutting red tape. Regulation must be proportionate, stable, coherent and technology neutral.‍

All the EU, national, and local institutions must make a major effort to produce simpler rules and to accelerate the speed of administrative procedures. Accessing funds or obtaining administrative decisions must become faster and cheaper for companies and citizens. For instance, building on the renewable energy permitting and Net Zero Industry Act, the planned Decarbonisation Accelerator Act will extend accelerated permitting to more (e.g. energy intensive) sectors in transition. The procedures for IPCEIs as well as for the energy infrastructure Projects of Common Interest will be made simpler and faster. The Multiannual Financial Framework (MFF) proposal will be the opportunity to further streamline access to and simplify EU funding instruments – currently fragmented over too many programmes – across the board.

The change will start with the Commission. The first-ever Commissioner for Implementation and Simplification is coordinating the Commission’s work in this area and steering a screening of the EU acquis to identify ways to simplify, consolidate and codify legislation as needed. Each Commissioner will hold regular implementation dialogues with stakeholders, twice a year, to understand implementation issues, hear business concerns and identify opportunities for simplification and burden reduction. Reality checks held by Commission services with stakeholders will further feed the stress testing of EU regulation. Simplification must be informed by an understanding of the practical operation of value chains and with a regulatory system based on trust and incentives rather than detailed control in mind. The Commission will put forward its overall approach next month.‍

This Commission will deliver an unprecedented simplification effort. This will aim to achieve the agreed policy objectives in the simplest, most targeted, most effective and least burdensome way. To ensure sustained and measurable efforts over the years ahead, the Commission has set ambitious quantified targets for reducing reporting burden: at least 25% for all companies and at least 35% for SMEs. Reporting burdens are a subset of all administrative burdens. Thus, to further increase our ambition, the 25% and 35% burden reduction targets should in the future refer to the costs of all administrative burdens, and not only reporting requirements. This results in a goal of reducing around EUR 37.5 billion of recurring costs until the end of the mandate. Dedicated measures for SMEs will aim to meet the 35% target.

This will start next month with the first of a series of Simplification Omnibus packages. The first Omnibus will, among others, cover a far-reaching simplification in the fields of sustainable finance reporting, sustainability due diligence and taxonomy. In line with the objectives of the sustainable finance framework to mobilise investment in the clean transition, the Commission will ensure better alignment of the requirements with the needs of investors, proportionate timelines, financial metrics that do not discourage investments in smaller companies in transition, and obligations proportionate to the scale of activities of different companies. It will notably address the trickle-down effect to prevent smaller companies along the supply chains from being subjected in practice to excessive reporting requests that were never intended by the legislators.

To ensure proportionate regulation adapted to companies’ size, a new definition of small mid-caps will soon be proposed. By creating such a new category of company, bigger than SMEs but smaller than large companies, thousands of companies in the EU will benefit from tailored regulatory simplification in the same spirit as SMEs. The Commission is also preparing a simplification of the Carbon Border Adjustment mechanism for smaller market players.

In the course of the year and throughout the mandate, the Commission will continue to present simplification measures, based on dialogue with stakeholders.The revision of the REACH Regulation will cover the existing acquis and new initiatives on chemicals, bringing a real simplification on the ground and ensuring faster decision-making on important hazards, as well as sustainability, competitiveness, security and safety. Following the proposed overhaul of the EU’s pharmaceutical framework to accelerate authorisations and streamline regulatory processes, the Commission is preparing short- term implementing measures to reduce burden and simplify in the field of medical devices. Furthermore, a substantial simplification package will be put forward this year to bring concrete on-farm burden reduction and relief to farmers.

A new SME and competitiveness check in impact assessments will become a stronger filter for new initiatives, also assessing the expected effects on cost differentials compared to international competitors. Greater attention will be paid to assessing the costs of proposed delegated and implementing acts, when relevant.

Digitalisation will go hand in hand with simplification to reduce the reporting burden. Companies and public authorities must be better accompanied when it comes to implementing EU legislation through stepped up support, capacity building and technical assistance. Use of digital tools and AI to power simplification efforts at governmental level must be facilitated, with full cross-border interoperability among public sector bodies’ solutions such as e-invoicing, e-signature, e-submissions and digital product passport. Wherever possible, reporting must move to digital formats based on standardised data. Building on the EU e-IDAS framework, the European business wallet will be the cornerstone of doing business simply and digitally in the EU, providing a seamless environment for companies to interact with all public administrations.‍

To ensure a level playing field across the Single Market, as well as fight fragmentation and gold plating, the Commission will pursue a forceful approach to full harmonisation and enforcement. In addition to work on simplifying record-keeping under the General Data Protection Regulation, the Commission will continue work on its more harmonised implementation and enforcement.

All EU institutions need to work together to avoid a ‘regulatory ratchet’. The commitment to better regulation must be shared by all institutions throughout the legislative process, in compliance with the principles of subsidiarity and proportionality. Working together with the European Parliament and the Council, a revised interinstitutional agreement will ensure that the simplification commitment and implementation focus hold from start to finish in the legislative process.

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