The European Union proposed a raft of reforms to flagship sustainability regulations Wednesday, slashing environmental reporting requirements for thousands of businesses and almost entirely removing the supply chain from due diligence considerations.

The trading bloc’s pioneering green agenda has played a central role in pushing fashion brands to do more to address pollution and labour abuses within the industry. Its rollback threatens already lagging efforts.

The change in tone comes amid growing pressure within Europe to prioritise economic growth over climate concerns, following a swing to the right after elections last year. A report published by the European Commission last month found the bloc has not kept pace with other major economies, and European companies are unable to fight back because they are being “squeezed” by a high regulatory burden. President Trump’s regulatory bonfire in the US has also fuelled ambitions to cut red tape in the region.

While the EU says it is still committed to a green agenda, hundreds of investors, advocates and businesses have published concerns that the planned regulatory changes would create uncertainty and harm climate progress.

“The text just tabled disproves previous statements by the Commission reassuring that simplification is not de-regulation,” labour organisation Clean Clothes Campaign’s lobby and advocacy coordinator Muriel Treibich said in a statement. “Clearly, the new trend in Europe is marching to the tune of big business, even at the cost of undoing the Union’s own laws.”

What’s changed?

The proposal put forward by the European Commission this week aims to streamline two landmark pieces of regulation affecting the fashion sector: the Corporate Sustainability Reporting Directive and the Corporate Sustainability Due Diligence Directive.

Under CSRD companies need to collect and disclose an unprecedented amount of information about their environment and social footprints, and how they plan to address associated risks. The rule came into effect for big businesses (including large fashion companies) this year and the first reports have already been published.

The EC’s proposal would slash the amount of information companies need to publish by around 70 percent. Compliance would be limited to companies with more than 1,000 employees and turnover above €50 million ($52 million). This change would remove around 80 percent of companies from the regulation’s scope. Smaller businesses would also have longer before they need to comply.

Tougher due diligence requirements expected to come in under CSDDD are also getting rolled back. Implementation has been pushed back a year to 2028 and penalties — previously set at up to five percent of global revenue — will be much lower. The incoming rule is intended to hold brands accountable for human rights abuses and environmental damage in the supply chain. It is now expected to apply to direct contractors only.

“Does it decrease the burden of reporting? It does. But is it meaningful enough? I don’t think so.” said Natalia Yerashevich, head of transparency and supply chain at Ohana, a public affairs agency which specialises in EU sustainability strategies. “We know the most severe adverse impacts occur [outside] tier one.”

What does it mean for fashion?

If the Package is implemented in its current form, the fashion industry will be subject to far less oversight from the EU, which until now has been a north star for regulation. That will put fresh pressure on the sector’s sustainability efforts.

“I would call this deregulation. What is happening now is simply just scratching out big pieces of the legislation, rather than tweaking or improving them,” said Yerashevich.

Reduced reporting requirements means less transparency and less pressure from investors and other stakeholders to act on environmental and social issues. Much of the supply chain is now out of scope for due diligence. Though this may reduce the burden of mapping, failing to look beyond tier one will reduce visibility, and may increase risk.

“We all know that fashion brands have a complex global supply network, so it is easy to see that a delay in implementing comprehensive monitoring systems could potentially prolong unethical labour practices or environmental degradation associated with their products,” said Muchaneta ten Napel, founder of fashion policy consultancy Shape Innovate. “In the long run this would allow the industry to continue business as before for another few years with no fear of immediate consequences.”

Nonetheless, many brands have already made significant investments in supply chain mapping, traceability and reporting systems and will be reluctant to waste efforts, experts say. The emergence of a voluntary reporting landscape among the most diligent brands is likely, they add. However, without regulation, these efforts will likely continue to rely on competing systems of certification and audits that have faced fierce criticism from both advocates and suppliers.

What happens next?

The proposals will now be submitted to the European Parliament and the Council for consideration and adoption, a process that can involve lengthy negotiations and further amendments.

The current iteration of the Omnibus Simplification Package is not necessarily its final shape with exact reporting data points, company thresholds, implementation dates all up for negotiation.