What is the Competitiveness Compass? Balancing EU Growth and Sustainability

Late January, the European Commission unveiled the Competitiveness Compass, a wide package with plans and measures to enhance the competitiveness of Europe. The Compass aims to (i) simplify the regulatory environment and (ii) to better coordinate policies at EU and national level. While the initiative aims to strengthen Europe’s investment climate, some critics argue that it could dilute the EU’s Green Agenda. 

At SCG, we see competitiveness and sustainability as mutually reinforcing. Companies that integrate sustainability into their models are often more resilient and financially more viable. A well-structured regulatory framework should support businesses that embrace sustainable finance while ensuring environmental policies remain strong and enforceable. 

Europe’s Scale-Up Funding Gap

Despite a strong early-stage investment ecosystem, Europe struggles to finance innovation, start-up and scale-up companies. This is due to a combination of reasons, ranging from financing acumen and regulation to investors’ experience and availability of large funders. 

Many high-potential businesses in Europe are not able to expand beyond their national markets and turn to seek their growth funding outside the EU. The numbers tell the story:

• Venture capital investments in the EU average just 0.3% of GDP—less than one-third of the comparable U.S. figure [IMF]. 
• Over the past decade, U.S. venture funds raised $800 billion more than their European counterparts, reinforcing the scale-up funding gap [IMF].
• Even in Europe’s strongest financial hubs, scale-ups raise significantly less than in the U.S.—the funding gap relative to San Francisco is 71% in Germany and 40% in Benelux [Jacques Delors Centre]. 

Insights from Letta and Draghi Reports

The Letta (early 2024) and Draghi (late 2024) reports about the EU Single Market and its competitiveness outline a long list of policy recommendations around topics such as innovation, skills, competitiveness, security and financing. 

The European Commission has welcomed these insights and responded with plans for regulatory updates and financial support. The EU has made a clear commitment to ensuring that high-growth businesses have the funding they need. However, execution will be key. Europe has seen bold policy commitments before, but many have fallen short in implementation. The real test will be whether these reforms translate into tangible capital flows for scaleups in key sectors such as AI, clean tech, semiconductors, and life sciences.