Designated Head Of EU Finance Wants To ‘Streamline’ Sustainability Reporting Requirements

Following the 2024 European Parliament elections, the European Union is restructuring the composure of the European Commission. As business minded leaders in the EU voice concerns that Green Deal regulations like the Corporate Sustainability Reporting Directive will be overly burdensome, the Commissioner-Designate for Financial Services and the Savings and Investments Union has expressed an interest in streamlining regulations to ease the burden on businesses. The shift to the right has alarmed climate activists who are concerned that the incoming leadership may shift away from Green Deal priorities and roll back initiatives aimed at holding companies accountable for greenhouse gas emissions.

Approved in 2020, the European Green Deal included a package of initiatives aimed at addressing climate change and other environmental concerns, with an overall goal of meeting the Paris Agreement’s requirement to have net zero GHG emission by 2050. May of those initiatives were directed at corporate behavior, with an intent on tracking and reducing GHG emissions from businesses.

The most notable was the CSRD. Initially proposed in April 2021, the CSRD increases existing reporting requirements for businesses operating in the EU. The directive greatly expands the scope of the reporting and the number of impacted businesses. The new reporting requirements go beyond traditional financial reporting to include environmental, social, and governance actions of businesses.

Enactment is set to be implemented in phases, as the European Sustainability Reporting Standards are drafted and adopted for various business sectors. The first round of ESRS were adopted by the European Commission in July 2023, going into effect January 1, 2024, for reports filed in 2025. The next round of ESRS are to be focused on sector specific standards and non-EU based companies. Reporting will eventually expand to include small and medium-sized enterprises as well.

The information contained in the sustainability reports are driving other regulatory action. In May 2024, the EU adopted the Corporate Sustainability Due Diligence Directive, also called the CSDDD or CS3D, creating a new legal framework for liability for climate change actions. The financial markets are relying on the data for investment strategy and the creation of green funds. Studies have also shown that climate action is a factor in lending decisions by banks, offering lower rates to greener companies.

While climate activists praise these actions, the CSRD has faced rising opposition from business leaders that feel the reporting requirements will place an undue burden on business and leave the EU at a competitive disadvantage.

This anti-green rhetoric fed into the elections for the European Parliament in June 2024. The conservative European People’s Party ran a campaign that blamed many of the burdens on businesses on the green deal. It worked. The EPP gained seats. Environmentally friendly political parties did not fare as well. The Greens-European Free Alliance and Renew Europe both saw significant losses. The victory by the EPP is indicative of a broader green pushback.

In her 2023 State of the Union speech, Ursula von der Leyen, President of the European Commission, expressed concerns relating to the over regulation of SMEs. In an interview with Le Journal du Dimanche on October 20, French Prime Minister Michel Barnier indicated a desire to roll back the scope of the CSRD. Now, the Commissioner-Designate for Financial Services and the Savings and Investments Union, Maria Luís Albuquerque, has expressed a desire to streamline reporting requirements.

Commissioner Albuquerque is working through the confirmation process in the European Parliament, with a confirmation hearing on November 6. As first noted by Real Economy Progress, Albuquerque addressed sustainability reporting in a questionnaire released by the European Parliament. The answers have further alarmed climate activists.

When asked to address sustainable finance, Albuquerque stated: “If I am confirmed as Commissioner, I will build on the framework in place and work towards streamlining requirements to alleviate unnecessary burdens, without compromising on our common European Green Deal objectives… The toolkit still needs to be made simpler and more proportionate for smaller market players, including as regards the indirect effects of obligations of larger players; and to better facilitate the scale-up of transition finance for all entities, regardless of their starting points and bearing in mind that significant steps towards sustainability objectives, even if incremental, are better than none. If confirmed, I will work to improve the overall usability of the framework, reducing administrative burdens on companies, and streamline the framework to make it more usable by a broader range of actors, including SMEs, without undermining the core objectives and without giving rise to greenwashing.”

Further, she stated: “If confirmed, I would pursue work on the Sustainable Finance Disclosures Regulation to tackle greenwashing more effectively and enable end-investors to understand more easily the sustainability features of the financial products they consider buying. To this end, first, we should consider changes to the environmental, social, and governance (ESG) disclosures for financial products, to improve comparability and reliability. Investors must receive robust, meaningful and easily understandable information, avoiding potentially misleading claims or complex processes…Second, we need to assess the feasibility of a sustainability-related categorisation system for financial products. The current misuse of the framework as a pseudo labelling regime poses greenwashing and investor protection risks and does not provide an accurate categorisation of products.”

While a lot of the focus will be placed on the reduction and streamlining of reporting requirements, climate activists should find solace in the commitment to the European Green Deal and the desire to reduce greenwashing, a perpetual problem that has frustrated those seeking change. However, there are clear signs that the next few years will be more difficult for climate activists within the European Union.