Tuesday

5th Dec 2023

EU to let companies self-police on green and social rules

  • Ursula von der Leyen committed to reducing reporting requirements on businesses by 25 percent to boost competitiveness in the face of the US competition (Photo: European Commission)
Listen to article

Last Friday (9 June), the European Commission published a draft set of environmental, social and governance (ESG) reporting rules.

The European Sustainability Reporting Standards (ESRS) will cover 50.000 EU companies and are meant to improve their disclosures on twelve standards.

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

These include workforce-related issues such as collective bargaining and adequate pay, the impact on the environment, water, local communities and biodiversity transition plans.

"We intend to adopt the delegated act in July and have the legal act in place in the autumn," Sven Gentner, who is a top civil servant at the commission chiefly responsible for ESRS, told public and private stakeholders on Wednesday.

Since it is a delegated act, it is not subject to parliamentary approval. Instead, it goes through public consultation with civil society organisations and businesses, who now have until 7 July to weigh in on the details, spot problems and suggest possible tweaks and changes.

One of the key battlegrounds will be the level of flexibility allowed to businesses. NGOs and investor groups have warned that the commission has backtracked on ambition too much.

Many of the reporting requirements, including those for climate, biodiversity and workplace standards that were mandatory in a previous version of the rules, have been made voluntary. This means a company can decide whether a standard applies to them.

"What we have done is move those disclosures from 'you shall disclose' to 'you may disclose'," said commission policy officer for non-financial reporting Tom Dodd, adding that topics like biodiversity reporting are made voluntary because they are "so complex."

Additionally, the commission has extended the so-called phase-ins, allowing businesses one to three years to omit to provide information after applying the standards, with added flexibility for the 30.000 companies with less than 750 employees.

There needs to be "flexibility, in particular for smaller companies in the beginning," said Gentner. "Many told us it is challenging, and it is important that businesses can cope with the requirements."

Criticism

"We acknowledge the challenges preparers will face when complying with the ESRS," said Alexandra Palinska, executive director of Eurosif, an investor group representing a diverse group of asset managers and institutional investors.

"However," she added "the EU Commission should not prioritise reducing reporting requirements at the expense of the public interest and other stakeholders, including investors and financial institutions in dire need of sustainability information to comply with their own regulatory requirements."

But "voluntary" does not mean a company is "entirely free" to decide whether a standard applies to them," said Dodd when explaining the decision to move away from mandatory reporting. "That is categorically not the case. Company assessments must be audited."

These audits will be done by private accounting firms such as KPMG and Deloitte. But Pierre Garrault, a policy adviser at Eurosif, told EUobserver that the "application of voluntary assessments for almost every ESRS disclosure would put a lot of weight on external auditors to look at the process of the company assessments."

"Additionally, voluntary disclosures when a topic is considered non-material could allow companies to omit entire parts of their sustainability reporting," he said.

Competitiveness

The broader "context in which we made these changes," said Gentner, was a commitment made in March by commission president Ursula Von Der Leyen to reduce reporting requirements on businesses by 25 percent to boost competitiveness in the face of the US and Chinese clean tech competition.

"Watering down the ESRS will be counter-productive for the EU's competitiveness in the long run," Jurei Yada, who is a programme lead for sustainable finance at the global think tank E3G told EUobserver.

"What we really need is comparable information and not more fragmentation. Investors and businesses need coherence across the sustainable finance framework to better plan for and invest in the economy of tomorrow."

The delegated act will apply from 1 January 2024.

Opinion

The 'BlackRock exemption' has no place in the EU's due diligence directive

With the EU's Corporate Sustainability Due Diligence Directive, there's an opportunity to harness the power of investment for truly sustainable activities. But to do this, it must not allow the 'BlackRock exemption' and instead cover institutional investors and asset managers.

Analysis

Final steps for EU's due diligence on supply chains law

Final negotiations on the EU due diligence law begin this week. But will this law make companies embed due diligence requirements in their internal processes or incentive them to outsource their obligations to third parties?

Investors baffled by watering-down of EU sustainable reporting plan

European investors are sounding the alarm over sustainable reporting rules, which they say have been weakened by the European Commission. Many reporting requirements that were mandatory in an earlier draft have been made voluntary, including climate, biodiversity and transition-plan reporting.

EU public procurement reform 'ineffective', find auditors

The EU Commission reformed procurement directives to make bids more attractive (and competitive), but the reform has failed, say auditors. Procedures now take longer, and the number of direct awards and individual tenders has increased over the past decade.

Analysis

What are the big money debates at COP28 UN climate summit?

The most critical UN climate conference (COP28) ever will run from Thursday to mid-December — with talks on climate commitments and climate finance expected to determine the success of this year's summit.

Latest News

  1. EU nears deal to fingerprint six year-old asylum seekers
  2. Orbán's Ukraine-veto threat escalates ahead of EU summit
  3. Can Green Deal survive the 2024 European election?
  4. Protecting workers' rights throughout the AI revolution
  5. Russia, the West, and the geopolitical 'touch-move rule'
  6. Afghanistan is a 'forever emergency,' says UN head
  7. EU public procurement reform 'ineffective', find auditors
  8. COP28 warned over-relying on carbon capture costs €27 trillion

Stakeholders' Highlights

  1. Nordic Council of MinistersArtist Jessie Kleemann at Nordic pavilion during UN climate summit COP28
  2. Nordic Council of MinistersCOP28: Gathering Nordic and global experts to put food and health on the agenda
  3. Friedrich Naumann FoundationPoems of Liberty – Call for Submission “Human Rights in Inhume War”: 250€ honorary fee for selected poems
  4. World BankWorld Bank report: How to create a future where the rewards of technology benefit all levels of society?
  5. Georgia Ministry of Foreign AffairsThis autumn Europalia arts festival is all about GEORGIA!
  6. UNOPSFostering health system resilience in fragile and conflict-affected countries

Stakeholders' Highlights

  1. European Citizen's InitiativeThe European Commission launches the ‘ImagineEU’ competition for secondary school students in the EU.
  2. Nordic Council of MinistersThe Nordic Region is stepping up its efforts to reduce food waste
  3. UNOPSUNOPS begins works under EU-funded project to repair schools in Ukraine
  4. Georgia Ministry of Foreign AffairsGeorgia effectively prevents sanctions evasion against Russia – confirm EU, UK, USA
  5. Nordic Council of MinistersGlobal interest in the new Nordic Nutrition Recommendations – here are the speakers for the launch
  6. Nordic Council of Ministers20 June: Launch of the new Nordic Nutrition Recommendations

Join EUobserver

Support quality EU news

Join us