At a glance
 

• Competitiveness has emerged as a top priority for the EU, as intensifying global competition drives renewed attention to strengthening the EU’s economic foundations. This imperative has been underscored by two key reports - Mario Draghi’s report on EU competitiveness and Enrico Letta’s report on the Single Market - both of which have been placed at the heart of the EU’s policy agenda. In line with this shift, the newly launched Competitiveness Compass and Clean Industrial Deal (CID) signal a strategic pivot - from a Green Deal primarily centred on sustainability to a broader clean industrial transition with competitiveness at its core.
• While the EU’s 2050 net-zero target remains in place, we expect a recalibration of how climate goals are pursued, with greater flexibility for businesses and a stronger focus on economic resilience. Sustainability will remain a core element of EU policymaking, but it will increasingly be framed as a lever for industrial transformation and strategic autonomy, rather than pursued in isolation.
• In the short term (2025-2026), businesses can expect regulatory simplification of sustainability reporting obligations and financial relief - particularly around energy costs. Simplification measures, such as the Omnibus Package, along with a slight increase in funds available and targeted support through instruments such as EU-backed corporate Power Purchase Agreements (PPAs), have the potential to unlock resources and provide financial relief for businesses.
• In the medium term (2027-2029), businesses should prepare for more structural reforms. The revision of the Public Procurement Directive and the forthcoming Circular Economy Act are set to boost the uptake of clean technologies and circular products. However, the scale of strategic public investment will depend on the outcome of negotiations around the next Multiannual Financial Framework (MMF) in 2028.
• Businesses should not interpret short term regulatory relief as a reason to delay transformation efforts. Instead, they should continue investing in shaping their strategy and operational models, integrating sustainability considerations, monitoring evolving funding opportunities at both EU and national level, and preparing for long term shifts in market dynamics—driven by future reforms such as the revised Public Procurement Directive and the Circular Economy Act.

Introduction
 

On 29 January 2025, the European Commission published the new Competitiveness Compass¹, aimed at outlining the overall EU strategy for the next five years, to tackle long-standing barriers and structural weaknesses that hold the EU back - particularly a persistent gap in productivity growth that has left EU trailing other major economies. The Competitiveness Compass is built on three main pillars:

• proposing a joint roadmap for decarbonisation and competitiveness;
• closing the innovation gap; and
• reducing dependencies on non-EU countries for strategic materials and key technologies, and strengthening economic security.

These pillars are complemented by a set of cross-cutting measures that act as enablers for competitiveness: reducing administrative and regulatory burden for businesses; expanding the Single Market by removing barriers to the free movement of goods, services and capital within the EU; a Strategy for a European Savings and Investment Union to mobilise private sector resources; promoting skills to ensure a good match between competences and labour market demands; and better coordination of policies at EU and national level.

Building on the joint roadmap for decarbonisation and competitiveness pillar, on 26 February 2025, the Commission published the CID². This initiative aims to update the strategy initiated in 2020 during the previous legislative term under the European Green Deal, with the goal of driving industrial transformation by combining sustainability and decarbonisation with enhanced industrial competitiveness.

While it is clear that the new direction of the Commission has shifted from a primarily green transition-focused approach to a stronger emphasis on competitiveness, it is worth noting that the EU has reaffirmed its net-zero by 2050 target and announced the introduction of a new intermediate goal to reduce emissions by 90% by 2040³ - a development that will continue to shape regulatory and investment expectations for businesses operating in the EU.

The framework outlined in the Competitiveness Compass and in the CID
 

The Commission’s strategy appears to address the need for greater competitiveness within the EU industry, such as “rising geopolitical tensions, slow economic growth and technological competition”. Yet, despite the ambition behind the Competitiveness Compass and the CID, their concrete economic impact will take time to materialise. This is due not only to the scale of the policy effort - with over 50 legislative and non-legislative initiatives - but also to a series of longstanding structural challenges facing the EU’s industrial ecosystem, including:

• persistently high energy costs;
• strategic dependencies on third countries for critical raw materials;
• massive investments to support industrial decarbonisation; and
• the increasingly uncertain and fragmented geopolitical context.

However, some proposals in the CID aim to provide short term relief for businesses while laying the groundwork for a future revitalisation of the EU’s industrial system.

Main short term initiatives to be published in 2025 and 2026

Main long term initiatives to be published after 2026

What does this mean for businesses?
 

Businesses now face a significantly different landscape than they did in 2020, when the Green Deal was introduced, and sustainability was the EU’s main focus. Today, economic competitiveness has moved to the centre of the EU agenda, influenced by shifting global geopolitics. Within this context, the main aspect that businesses should consider when approaching the opportunities tied to the new EU industrial strategy is the speed of its implementation.

In the short term (2025-2026):

The Omnibus simplification packages, with the revision of the CSRD, the CSDDD and the Taxonomy, are expected to ease the reporting burden on businesses regarding sustainability disclosures. However, this should not result in a slowdown of the restructuring and integration efforts already undertaken by many businesses, which have often required significant investment. Sustainability reporting obligations are both a regulatory requirement for certain businesses and also a key driver of value creation. This requires a high level of transparency over the involvement of top management in overseeing sustainability and integrating it into their company’s business model, strategy, and decision-making processes. In this context, businesses should consider:

• continuing to reshape corporate governance and organisational structures by embedding sustainability into decision-making processes, revising governance structures and management models, and strengthening internal control and risk assessment systems to ensure a more systematic and accountable approach to sustainability; and
• assessing the adequacy of organisational structures to ensure full compliance with the revised rules that will emerge from the Omnibus package in the course of 2025 and 2026 - starting with the configuration of top governance bodies - is one of the necessary first steps to address the evolving regulatory landscape.

The funds available to businesses for clean energy projects in the short term will be significant, though not abundant, and are expected to come through a mix of subsidies, grants, and tax incentives provided at both the EU and national levels. For this reason, businesses should consider the following actions:

• understand the evolving funding landscape and identify the most suitable financing opportunities through a detailed mapping process tailored to the specific needs of each company; and
• closely monitor the opportunities that each Member State will offer in terms of State aid. Since the regulatory framework is expected to be revised in the short term, businesses may benefit from greater flexibility at the national level to support decarbonisation projects.

In the medium term (beyond 2026), the initiatives outlined in the Commission’s industrial strategy signal an intent to strengthen the Single Market and foster investment in the circular economy, with the overarching goal of reducing emissions and meeting the climate targets mentioned above. However, at this stage, many of these proposals lack detail.

Given the rapidly evolving geopolitical and geoeconomic landscape, it remains difficult to assess with certainty the scale of potential changes or the concrete measures the Commission will ultimately adopt to achieve its sustainability objectives. In this context of constant and rapid transformation, businesses will need to monitor policy developments closely and remain agile, ready to adapt to an increasingly dynamic and uncertain regulatory environment.

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References

1. EU competitiveness - European Commission

2. Clean Industrial Deal - European Commission

3. 2040 climate target - European Commission

4. Commission simplifies rules on sustainability and EU investments - European Commission

5. Action Plan for Affordable Energy - European Commission

6. Exemptions will be applied. For the proposal of the European Commission, please see here.