France Calls for ‘Massive’ Regulatory Pause as Economy Flags

France is calling for a major reworking of European regulations, starting with ESG rules, as the bloc struggles to revive its competitiveness against a backdrop of sweeping deregulation across the Atlantic driven by US President Donald Trump.

Author of the article:

Bloomberg News

Frances Schwartzkopff and Alberto Nardelli

Published Jan 24, 2025  •  5 minute read

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(Bloomberg) — France is calling for a major reworking of European regulations, starting with ESG rules, as the bloc struggles to revive its competitiveness against a backdrop of sweeping deregulation across the Atlantic driven by US President Donald Trump.

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The simplification process must start with “a massive regulatory pause,” the government said in a 22-page document seen by Bloomberg. In addition, recent legislation must be reexamined and revised as it becomes clear the laws are “ill adapted to the new context of exacerbated international competition and to the uncooperative policies of our main international competitors,” according to the Jan. 20 document.

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The French push for a recalibration coincides with the planned enforcement of an array of new environmental, social and governance reporting requirements that European companies must now digest. Meanwhile, their competitors in the US look poised to enter a phase of deregulation, with Trump wiping out a range of Biden-era green policies in his first days in the Oval office. 

“A lot of the European businesspeople have expressed enormous frustration with the regulatory regime in the EU, and they attribute slower growth rates here because of the numerous factors, but especially because of regulations,” Trump said during a virtual appearance in Davos on Thursday.

The French paper adds pressure on the European Union, which has already said it plans to make regulatory simplification a key part of its agenda for the next five years. In a draft report due next week on its competitiveness strategy, the EU will promise to deliver an unprecedented simplification effort to help deliver on a goal of cutting reporting obligations by at least 25%. 

The French proposals span from creating a new category of mid-cap companies that would be spared some regulatory duties to simpler state-aid rules and a revision of regulations on chemicals, highlighting the scale of the challenge the EU is facing in an increasingly tough battle for a level playing field. 

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Europe can ill afford to ignore the changed political context and the economic burden put on its companies by the bloc’s regulatory framework, according to the French document. The EU “is currently losing 10% of its GDP potential,” the French simplification manifesto said, citing a report by former European Central Bank President Mario Draghi.

“We need to focus on legislation that complicates the daily lives of your companies and slows down their growth,” French economy minister Eric Lombard said on Thursday. 

President Emmanuel Macron is also tackling an eye-watering deficit and a slowing economy amid political turmoil after losing his relative majority in parliament last year.

France is calling for simplifications in rules affecting the banking sector, including further delays in the implementation of the so-called fundamental review of the trading book requirement under Basel III. 

It will also propose creating a new category for mid-sized firms to ease their regulatory burden.

The development means the EU’s two biggest economies are now publicly pressuring the European Commission to make cuts to a landmark piece of regulation that’s currently on track to force as many as 50,000 companies to report hundreds of ESG data points. Germany has already called for the regulation — the Corporate Sustainability Reporting Directive — to be reined in, as Europe’s largest economy finds itself mired in decline.

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Many businesses and lawmakers blame Europe’s regulatory framework for the bloc’s loss of competitiveness, and warn that CSRD in particular will require disproportionate resources to ensure compliance. French authorities say changes to the directive are “urgent.”

Robert Ophele, chair of the French Accounting Standards Authority and a former head of the country’s financial regulator, said earlier this week that there is now “a common diagnosis of the need to lighten the burden on businesses to make them commensurate with the challenges we face.” 

However, he cautioned against a wholesale unwinding of Europe’s ESG regulatory framework. The adjustments sought are “more in the magnitude and timing,” he said.

The European Commission may choose to back significant limits in the scope of CSRD, Bloomberg has previously reported, based on guidance from people familiar with the matter who asked not to be identified discussing private deliberations. Talks are ongoing and the commission continues to take new information into account, the people said.

Talks are expected to continue until Feb. 26, when the commission is scheduled to discuss and possibly adopt the omnibus legislation, the commission spokesperson said, referring to a legislative process that combines more than one proposal. The timeline may be subject to change, the person said.

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In the existing plan, CSRD would affect companies with at least 250 employees and annual revenue of €50 million ($52 million). The first batch of companies started collecting data for CSRD last year, with public disclosures due to be published in 2024 annual reports. 

While an important “tool” for transitioning Europe’s economy to a net zero future, CSRD’s reporting requirements should be “significantly lightened” and metrics should be focused on “climate objectives,” according to the document. Large companies also should be limited in the information they can demand of subcontractors.

The French are also calling for postponing implementation of the Corporate Sustainability Due Diligence Directive, which introduces new legal risks for companies that fail to address human rights and environmental breaches in their supply chains. Changes are needed because the legislation as now written is likely to affect competitiveness, “including in relation to non-European companies not subject to these same standards.”

CSDDD, which was passed last year but still needs to be transposed by individual EU members, has already seen its scope significantly curtailed.

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And France wants a review of the green asset ratio, a metric that was supposed to provide investors with a guide to assess how green bank books are. The industry has said the ratio is virtually useless because of how it’s calculated.

The current methodology “makes the ratio irrelevant since it depends to a large extent on the banks’ business model, and could have negative consequences for SME financing,” according to the French document.

The EU executive and national governments are under growing pressure from the industry to cut red tape that many energy-intensive and clean tech companies alike say hurts their competitiveness and stifles much-needed investment in sustainable economy. Commission President Ursula von der Leyen made simplification one of her key goals during the second term at the helm of the bloc’s regulatory arm.

—With assistance from Alan Katz and Ewa Krukowska.

(Adds context and details throughout.)

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