ESG reporting proposal an EU de-regulation risk: experts

The EU Commission is looking to simplify environmental, social and governance (ESG) reporting rules for businesses by incorporating the three existing key sets of rules on this topic into one ‘omnibus’ regulation, amid pressures to improve competitiveness as the continent battles with an increasingly challenging economic landscape.

But the move could result in heightened uncertainty and potentially hamper decarbonisation goals, commentators warned.

Europe’s ESG requirements were introduced as part of the Green Deal, and are considered among the most stringent in the world, requiring businesses to provide in-depth information about their environmental footprint and efforts to reduce emissions.

Specifically, the EU Taxonomy Directive, adopted in 2020, stipulated what investments are considered ‘green’, while the Corporate Sustainability Reporting Directive (CSRD) put in place reporting requirements for businesses on greenhouse gas emissions and ESG actions. For large companies, reporting begins in January 2025, while it is delayed for small and medium-sized enterprises.

Finally, the Corporate Sustainability Due Diligence Directive, which is to be transposed into national law by EU Member States by July 2026 “aims to foster sustainable and responsible corporate behaviour in companies’ operations and across their global value chains” by addressing “adverse human rights and environmental impacts of their actions inside and outside Europe.”

EU businesses however are increasingly pushing back against these requirements, which they say place an excessive burden on companies amid overlapping requirements.

Against that backdrop, EU Commission president Ursula Von der Leyen expressed the intention to consolidate ESG reporting rules into one single ‘omnibus’ regulation, with the simplified rules expected to be published in early 2025.

The pledge came after a meeting between the EU Commission and EU heads of state in November, resulting in the Budapest Declaration, in which they sent the target of reducing red tape and slashing reporting requirements for businesses by “at least 25%” as a key goal.

A spokesperson for the EU Commission confirmed to Gas Outlook that “simplification and burden reduction will be at the core of the work of the next College [of Commissioners]…We will identify simplification measures and packages of measures aiming to take a comprehensive look at a particular area.”

“This work might result in omnibus amendments” seeking “to amend several acts, to concentrate efforts, ensure coherence, build momentum and thereby maximise simplification.”

“Simplification and burden reduction can only be achieved if all institutions work together and adopt measures swiftly, while ensuring that no unwanted additional burdens are added during negotiations.”

“This is why we will propose to renew the Inter-institutional agreement on simplification and better law-making, so that each institution assesses the impact and cost of its amendments in the same way,” she added.

“Ursula von der Leyen indicated that reporting burdens of businesses will be significantly decreased,” Brussels-based geopolitical analyst Botond Feledy told Gas Outlook.

“This has been an ongoing narrative she actually promised at the introduction of her first mandate in 2019 when the ‘better regulation’ idea took hold.”

“The difference between 2019 and 2024 is tremendous,” he argued.

“Several EU capitals are adamantly fighting for decreasing the EU green deal regulations and easing the life of businesses in Europe, as the U.S. and China, industrial competitors, have a less stringent regulatory environment. “

“This time the EU’s regulatory soft power did not work out” as “those regions did not adopt much similar regulations.”

“Normally the steps promised by Von der Leyen should decrease costs on the business’ side and serve long-term predictability as for what needs to be reported and what not.”

“This time heads of state and governments, members of the EU summit, will follow it closely and will not let her get away with some light promises,” he anticipated.

“It is indicative that the Commission is now speaking about a new industrial deal, and not about the 2019’s green deal” amid a shift in priorities, he added.

But the move to simplify ESG requirements carries risks of heightened uncertainty, observers warned.

“While the Commission has framed the ‘omnibus’ as a technical move to improve coherence and usability, reopening these cornerstone regulations carries significant risks,” Jurei Yada, director at  climate change think tank E3G told Gas Outlook.

“Once proposed, the omnibus would go through negotiation among the European institutions and the outcome could be more substantive than the intended focused, technical changes.”

“This means businesses will be waiting in uncertainty and not know where this will end up.”

“A more constructive approach would be to provide businesses with implementation support and to work through delegated acts and guidance,” he noted.

While it is still unclear what aspects of the three sets of rules will be reduced, ESG reporting requirements under the CSRD, due to apply from January for the majority of covered enterprises, are particularly cumbersome, with ‘social’ and ‘governance’ requirements in particular presenting opportunities for simplification, Markus Lange, a German-based lawyer at consulting firm Baker Tilly, told Gas Outlook.

 At the same time, re-opening negotiations around these three legislations presents considerable risks, he warned, pointing at what is happening with the EU Deforestation Regulation, which was delayed amid pressure from stakeholders. The new timeline still needs to formally approved, exposing it to potential changes. 

 “People may want to reduce reporting obligations…The door is open so everyone could try to renegotiate what was agreed before,” he said.

 “This involves a number of political risks and uncertainty” as “people feel invited to question (the regulations) in a more general way.”

 There’s a risk of “opening the door to de-regulation” by “inviting people to kick out everything they don’t like.”

 A lot of it is in place because “it is needed” to achieve binding net-zero by 2050 targets, he added. “I still find it difficult to see how to achieve a concrete proposal and get it agreed,” he said.