Going for a Simplified Regulatory Landscape? European Commission's Omnibus Proposal Ignites Controversy
EU Business Reporting: Introducing Complexity Rather Than Simplifying Matters
In a bid to ease the burdens for businesses, the European Commission dropped its latest proposal, targeting the EU sustainable finance reporting and due diligence. However, it seems the initial intent has taken a backseat, as experts grapple with understanding the revised regulations and anticipate a chaotic setting until a final agreement.
The Green Deal, a central pillar of EU policymaking under Ursula von der Leyen, ushered in an array of stringent regulations to help the bloc attain net-zero emissions by 2050. As economic headwinds gained strength, the call for competitiveness grew louder.
Mario Draghi's 2024 Competitiveness Report echoed the urgency, emphasizing the need for quick action to boost the EU economy. Sustainability emerged as a golden ticket, promising opportunities for a dynamic, competitive European economy.
The outcome? An ambitious omnibus proposal to overhaul the EU Corporate Reporting Sustainability Directive, Corporate Sustainability Due Diligence Directive, and the sustainability taxonomy, all aimed at simplification.
While some industry voices have applauded the commission's plan, other critics argue that the proposals amount to "deregulation" — a dismantling of rules that favor sluggish companies over those striving for sustainability.
Key alterations in the plan affect the CSRD, already in effect for larger businesses. The omnibus proposes excluding roughly 80% of initially covered companies, applying the CSRD only to firms with over 1,000 employees. Similarly, only the biggest companies would be required to align their operations with the taxonomy's criteria, and reporting deadlines for several companies would be pushed back by two years, until 2028.
The package also calls for data requests from larger companies to small-and-medium-sized enterprises (SMEs) to be based on the voluntary reporting standard for SMEs, prepared by the European Financial Reporting Advisory Group to guide organizations with limited resources in reporting ESG issues in their supply chains.
The changes to the CSRD leave businesses within the original legislation's scope in a precarious position, especially since not all EU member states have adopted the CSRD into national law yet.
In an effort to bring some clarity, the commission seeks to first secure a postponement law agreed upon by the parliament and EU member states, setting out the revised implementation timeline. The outstanding details can then be ironed out in the following months, perhaps even extending beyond.
Though the commission's goal is laudable—enhancing European companies’ competitiveness—such regulatory confusion is far from conducive, particularly for those companies already working hard to comply with the earlier demands.
With fewer companies reporting sustainability information, the integrity and comparability of data will dwindle. Consequently, businesses, investors, and governments may face more significant challenges in identifying and dealing with climate-related risks and potential benefits. This could impair resilience, innovation, and long-term competitiveness.
Given the urgency of global climate change, it's crucial for the EU institutions, national authorities, and business organizations to support companies in executing necessary responses during the remainder of this year.
Climate change isn't waiting for regulatory clarity. Emissions continue to rise, and the costs of extreme events to the economy persistently increase. Amid this tumult, EU institutions, national authorities, and business organizations must stand by companies as they navigate the rest of 2023.
- Maria Mendiluce, as part of the We Mean Business Coalition, expressed concerns about the European Commission's omnibus proposal, stating that the suggested deregulation could drag the bloc's competitiveness instead of promoting it.
- Ursula von der Leyen, in agreement with EU leaders, has pressed for the implementation of the European Green Deal's stringent regulations, emphasizing the crucial role of sustainable practices in ensuring the EU's long-term competitiveness and addressing climate change.
- In response to critics arguing that the proposals would lead to decreased competitiveness, the European Commission maintained that the omnibus aims to create a simplified regulatory landscape, fostering a more sustainable and competitive European economy in line with the Competitiveness Report.