Former European Central Bank President Mario Draghi talks to the Berlaymont media, EU … [+]
The European Commission promised regulatory simplification. She wanted, she said, to make life easier for business. Its latest Omnibus proposal published in sustainable EU finance reporting and proper care, at least in the short term, has had the opposite effect.
At the moment, the confusion reigns while experts try to understand the details of the plan and how they will go down after they pass the EU regulatory process. Indeed, it is likely to be the end of the year before agreeing a final agreement by the Commission, EU member states and the European Parliament.
The European Green Agreement was the heart of the beating of the last four years of making EU policies. It was the policy of the Flag of Commission President Ursula von der Leyen. In his efforts to move the block towards Net Zero by 2050, the EU introduced legislation. Very soon, he warned a lot, and as the economy heads exploded, von der Leyen returned for a second term with a message of competition.
Mario Draghi’s 2024 Report on competition underlined the urgent need for rapid and crucial action to strengthen the EU economy, positioning sustainability as an opportunity. The report accepted the potential to simplify the finance regulations in its essential focus of a more dynamic, competitive, future European economy.
The result of all this is the OMNIBUS proposal by the Commission to “simplify” the EU Corporate Sustainability Directive, the Corporate Corporate Sustainability Directive and its Sustainability Taxonomy.
While many industry groups have welcomed commission’s plans, others warn that they go beyond “simplification”. They argue that proposals are an attempt at “deregistration”, a disintegration of rules that reward delays rather than leading companies that work hard to make their business more sustainable.
Some of the main changes that will affect companies relate to CSRD, which has already entered into force for larger businesses.
Omnibus proposes to exclude about 80 percent of companies originally covered by CSRD by making them applicable only to firms with more than 1,000 employees. Likewise, only the same, the largest companies will have to report how their business matches the criteria of taxonomy. And reporting requests for CSRD companies that would be required from 2026 or 2027 would be postponed up to two years by 2028.
The package also says that any data required by larger companies by small and medium companies to enable them to meet reporting requirements must be based on the voluntary reporting standard for SMEs. These were drafted by the European Financial Reporting Counseling Group to assist organizations with fewer resources report ESG issues in their supply chains.
Changes in CSRD are particularly disturbing for businesses that fall under the goal of original legislation as, until a new law is adopted, they must still be technically comply with its requirements. The situation has become increasingly confusing given that not all EU member states have moved CSRD to national law.
The Commission is trying to make Parliament and EU member states agree, in the first place, in a postponement law, which will determine the time limit changes for implementation to provide some clarity for businesses. The rest of the details could then be blocked in the coming months and maybe longer.
The commission is of course the right to want to improve the competition of European companies, but causing confusion is not useful, at least for all those companies that have spent money and time to get their home in order to be required.
With fewer companies required to report the same way, the clarity and compassion of the data will be reduced. Without comprehensive sustainability data, businesses, investors and governments will face greater challenges in identifying and addressing climate-related weaknesses and climate-related opportunities. This will eventually undermine resistance, innovation and long -term competition.
It will take months until a final agreement is reached by EU institutions. Meanwhile, climate change is not leaving. Emissions continue to increase and the costs of extreme events for the economy continue to grow. EU institutions, national authorities and business organizations must support companies in the actions they need to take for the rest of this year.