How the EU distorts data to justify green deregulation

Last week, the EU Commission unveiled a plan to cut corporate reporting requirements, claiming it will reduce costs and boost competitiveness. Critics lambasted the changes because they would dramatically shrink the scope of social, environmental, and human rights reporting and due diligence. 

If the plan goes through, only 20 percent of the companies originally envisioned will be covered. 

The commission, in various documents and statements, has defended its plans on the basis of cost. 

In a document released with the Omnibus package, the commission estimates its “rationalisation measures” will cut costs by about €5bn a year—€4.4bn for corporate sustainability disclosure (CSRD) and €320m for due diligence rules on human rights and environmental impacts in supply chains (CSDDD).

These figures are rough estimates. Even if they materialise, these savings are likely too small to meaningfully impact corporate balance sheets. According to the commission’s own estimates, due diligence reporting costs (CSDDD) range from €52,200 for large companies to €643,000 for very large companies with a turnover higher than €5bn.

As the Dutch NGO SOMO calculated last week, even at the highest estimate (€643,000), annual compliance costs would represent just 0.01 percent of the average CSDDD company’s annual turnover and 0.09 percent of its net profit in 2023 (and 0.13 percent of shareholder payouts). 

“Complying with [EU due diligence rules] is by no means the factor that would impact EU firms’ competitiveness,” the researchers write. “What is actually harming their competitiveness is their massive payouts to shareholders.”

Is there really a trade-off?

Despite the limited impact of these savings, the commission continues to frame reporting rules as a competitiveness issue. 

However, as Andreas Rasche, professor and associate dean at Copenhagen Business School, wrote in a LinkedIn post last week, there is “little evidence that reduced reporting costs actually increase competitiveness.”

Compliance costs typically decline over time as auditors, consultants, and businesses adapt. Yet the commission never conducted a comprehensive impact assessment, which “could have clarified things,” Rasche told EUobserver in an email.

“Saving costs is important, but it is too shortsighted to ignore the benefits CSRD and CSDDD offer, such as improved risk management, better capital allocation, and stronger human capital management,” Rasche added.

“Declaring sustainability reporting a competitive disadvantage may appease populist and revisionist sentiments, but it is not a winning strategy for Europe’s future,” he said.

“What is needed now is courage, a firm belief that sustainability and competitiveness go hand in hand,” he said. “But in a process as rushed as the omnibus one, any discussion of potential benefits was lost.”

Flawed numbers

Calling the process rushed might still be too generous. Beyond shaky cost savings estimates, the push for deregulation also leans on flawed economic claims.

Mario Draghi’s report on competitiveness, for example, which forms the blueprint for the omnibus package, estimated that existing trade barriers in the single market cost “10 percent of GDP, according to one estimate.”

However, Draghi misinterprets the original source—a 2019 report by Jan in 't Veld, a civil servant at the commission’s economy department—which wasn’t an estimate but a counterfactual illustrating a hypothetical scenario.

In 't Veld calculated that without the single market, EU GDP would be 6.8 percent lower, while capital stock would shrink by 10 percent.

Draghi not only conflates capital stock with GDP—two fundamentally different measures—but applies it to a different argument. 

This distortion was further amplified when French diplomats, in a letter to the council lobbying for green deregulation, quoted Draghi as saying Europe loses 10 percent of GDP due to “regulatory complexity.”

A highly liberal interpretation, because Draghi referred to trade barriers, not green rules. When asked, French representatives did not provide further explanation to EUobserver.

Consequently, what began as a counterfactual about the single market was reshaped—first into Draghi’s argument for fewer trade barriers, then into a justification for rolling back green regulations.

While it’s impossible to say whether this specific misinterpretation directly influenced the omnibus package, it shows how the EU’s telephone game distorts studies to fit a narrative—turning green reporting into a competitiveness threat, despite little evidence that deregulation would boost competitiveness.

This article has been amended to clarify that French representatives were contacted.