EU maintains focus on corporate sustainability as it looks to simplify the rulebook

Among the list of rules to be simplified are the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), the Carbon Border Adjustment Mechanism (CBAM) and the EU Taxonomy.

Companies and investors demand policy certainty from the omnibus

Ahead of the omnibus proposals being announced, a number of the world’s largest companies cautioned the EU against reopening the regulations completely for wholesale change. They warned this would “undermine policy certainty”, a key prerequisite for economic growth. More than 200 financial sector institutions, including asset owners and asset managers with a combined €6.6 trillion assets under management, signed a joint statement calling on the European Commission to preserve the integrity and ambition of the EU’s sustainable finance framework.

Other segments of the business community were more open to see significant root-and-branch changes to the regulatory framework, including the European Round Table for Industry, an influential trade association representing 60 of Europe’s largest industrial and technology firms.

However, although these percentage reductions seem high, a significant number of large multinational companies will still find themselves within the regulatory parameters and therefore must continue with their preparation to meet the reporting requirements. They very much remain in the eye of policymakers as the European Commission is keen to not throw the baby out with the bathwater.

It's understandable to see why there is a desire to maintain focus on corporate sustainability, as EU policies have been effective in moving the dial. Data collected from 2,000 companies on their regulatory disclosures by Bloomberg shows a significant increase in Taxonomy-alignment year-on-year, indicating that large EU firms are becoming more sustainable.  

Paris-aligned transition planning remains a focus

The EU still expects companies to continue their preparations to publish climate transition plans, if they have not done so already. The omnibus slightly tweaks the requirements by harmonizing the respective CSRD and CSDDD sections, thereby adding clarity on what a robust and credible plan should include:

• Alignment with Paris Agreement goal of limiting global temperature rise to 1.5˚C;
• An explanation of the decarbonization actions the company will take to meet targets;
• Details of the investment and funding needed to support the transition plan goals;

All eyes on the coming months

The European Commission’s ambition is to “fast-track” the omnibus proposals through the European Parliament and the EU Council and have it agreed by year-end so that the newly proposed deadline for reporting can be adjusted before ‘old’ obligations kick in.

It will be important for companies to remain engaged and monitor developments over the coming months. Regardless of the outcome, it is clear that in its efforts to boost competitiveness, the EU will not abandon its focus on encouraging greater corporate sustainability and transparency.

¹ 80% of Companies to Stick with Climate Reporting Plans Even if Regulations Change: Workiva Survey