Last week, the European Commission surprised the world with their far-going proposal to drastically reduce and delay sustainability reporting in Europe.
The so-called Omnibus package aims to reduce administrative burdens by 25%, simplifying regulations and helping businesses navigate high energy costs. The proposed relaxations could save up to €40 billion and make state aid more accessible.
However, the Omnibus package effectively encourages many companies to halt their CSRD reporting. Suddenly, the European Green Deal turned pale. With around 80% of companies exempt from reporting requirements, its credibility is now at risk.
Immediate relief
Europe promises a “fast track” to get the proposals through the European Parliament and the European Council. I can’t imagine every member state being happy with this proposal. It’s a major step back in sustainability reporting. And this in a moment where the big public interest entities are publishing their first integrated, CSRD compliant reports, which turn out to be very insightful and inspiring, a true enrichment to the image and strategy of the company.
Is this proposal creating relief or confusion? Now that the EU forced its member states to transpose the CSRD into their national laws (in which some of them failed), they are coming with an opposite statement that should lead to a revised transposition in national laws.
Has there ever been a fast track in European decision making? Isn’t the Commission putting companies at risk by hoping all amendments will be transposed in national laws by year end?
Scaling back sustainability reporting isn’t cutting red tape—it’s cutting credibility. Competitiveness and sustainability are not enemies; we risk losing Europe's strongest advantage by sacrificing one for the other.
The setback of sustainability reporting: not a winning strategy
The misleading image that we need sustainability reporting for the sake of reporting has been created and used more than once meanwhile. We need a framework that can foster long-term changes to planet and society. We need a catalyst for sustainable initiatives. It is an unfortunate and populist statement claiming integrated reporting is a competitive disadvantage.
On top, basing the Omnibus proposal on a virtual and imaginary cost narrative and concluding that competitiveness wins over sustainability is another wrong trade off. Competitiveness and sustainability are not enemies. We might risk losing Europe's strongest competitive advantage by cutting down on sustainability.
‘Greenwashing, we’re back!’
Of course, and that’s a fair point, certain requirements were impractical, complex and demanded more effort than expected. Europe could have done much better and been more pragmatic in the adoption of the CSRD. But with exempting around 80% of companies from reporting obligations, I cannot believe we are on a winning track.
I think Europe is missing a unique opportunity to offer a more pragmatic, less regulated platform to lower the burden for sustainability reporters. Instead they deregulated a major part of the European companies.
It’s a bit early to see what the short-term plans of reporters under the current CSRD rules will be. Will they stay on course and continue their ESG journey, or will they stop reporting on sustainability? Or back to square 1, will they report on the things that give them a better (but often false) sustainability image? Greenwashing, we’re back!
Don’t stop your sustainability engagement
While the European Commission is missing the mark here, I remain confident that companies will take their responsibility and continue their ESG programs. For them sustainability matters. Already from the start of their sustainability projects, sustainability has never been a compliance exercise but a strategy that has always been part of their DNA.
Reporting regulation might be downscaled, stakeholder expectations will however not disappear. I advise companies not to quit their sustainability efforts, nor their sustainability reporting. It’s a strategic exercise and you will be ready at any moment the political battle stops and the fog lifts.
For those companies falling out of the 1000-employee threshold, it’s not sure whether this threshold will stand for long. Quite a few countries are reluctant and political negotiations will continue. We will have to discover in the year to come how this political battle turns out.
In the meantime, the care for planet and society and the drive for healthy profits continues, with or without the Omnibus.
