The Corporate Sustainability Reporting Directive (CSRD), a cornerstone of Europe's sustainable transition, is currently the subject of intense political debate.
Designed to transform corporate sustainability reporting, it is now being called into question by the proposed “omnibus regulation.”
The latter aims to ease certain requirements, raising a crucial question: should we prioritize transparency to encourage real change or give in to the temptation of simplifications that could reduce the positive impact of this directive?
Context: What is the CSRD?
The CSRD, which replaced the Non-Financial Reporting Directive (NFRD) in January 2023, marked a turning point in corporate sustainability reporting in Europe.
It redefines the rules of the game by introducing ambitious non-financial reporting standards based on the principle of double materiality, which assesses both the impact of a company's activities on the environment and society, and the impact of sustainability issues on the company itself. These standards are aligned with the European Sustainability Reporting Standards (ESRS), designed to ensure the consistency and comparability of published data.
Nearly 50,000 companies are now affected by this directive, which imposes a harmonized reporting framework covering environmental, social, and governance (ESG) aspects. This represents not only a challenge for companies, but also an opportunity to better integrate sustainability into their business practices and strengthen their long-term competitiveness.
The Political Debate: Simplification or Strategic Retreat?
It is not surprising that the CSRD's strict requirements have attracted criticism. Stéphane Séjourné, a French politician, and Robert Habeck, Germany's Minister for Economic Affairs, have called for the framework to be simplified, highlighting the difficulties faced by SMEs in implementing these complex requirements. Their argument that regulation could end up stifling businesses under a mountain of paperwork seems reasonable at first glance. However, one question remains: are these concerns genuinely related to feasibility, or are they the expression of powerful lobbying efforts to preserve the status quo?
Recent investigations have revealed significant lobbying activities by professional associations such as BusinessEurope and the European Banking Federation (EBF). These groups are arguing for less stringent requirements, citing the need for “economic realism” while downplaying the urgency of climate and sustainability goals. This pressure risks reducing the transformative ambitions of the directive, raising doubts about the real intention of the simplification proposals: do they serve the public interest or specific commercial interests?
One of the demands is to raise the thresholds for companies covered by the CSRD, for example by increasing the criteria relating to the number of employees, turnover, and balance sheet size. While this could ease the burden on some small businesses, it risks creating a two-tier CSRD, rewarding latecomers while penalizing those who have already invested in compliance. It also raises other questions about the implementation of the directives within the European Union.
Another of the most controversial proposals, put forward by Séjourné, is to “divide by ten” the number of data points required by the CSRD. Critics argue that such claims border on misinformation, as the actual data requirements vary between 400 and 700 indicators, depending on the double materiality assessment, which is far less than what is being suggested. By way of comparison, IFRS financial standards require a similar number of indicators, covering aspects such as assets, revenues, and cash flows. However, these requirements have been widely accepted without much opposition, highlighting a difference in treatment of non-financial reporting.
On the other hand, supporters of the directive, such as Pascal Canfin, Chair of the European Parliament's Environment Committee, and Virginijus Sinkevičius, European Commissioner for the Environment, have expressed strong concerns about the dangers of watering down the CSRD. Canfin explicitly denounced the lack of transparency regarding the influence of lobbying on the European Commission's decisions, insisting that any simplification must not be at the expense of the system's credibility.
Although harmonization and simplification measures, such as the integration of climate transition plans or the digitization of reporting processes, are considered constructive, they must not sacrifice the ambition for ecological transformation or hinder investment in sustainable business models. The objective of the CSRD is not limited to mere compliance with sustainability reporting; it aims to make it a lever for promoting the transformation of companies towards a more sustainable model.
What are the consequences of weakening the CSRD?
The desire for simplification is not an isolated phenomenon, and its repercussions will be felt throughout the EU's sustainability ecosystem. If reporting requirements are relaxed, several risks emerge, with potentially serious consequences:
Weakening of the European Taxonomy
Reducing CSRD requirements would directly affect the European Taxonomy, which relies on accurate company data to identify sustainable activities.
The taxonomy relies on accurate information about companies' sustainable economic activities to guide investment. If this data becomes less comprehensive or rigorous, it will be more difficult for investors to distinguish truly sustainable projects. This would undermine the EU's objective of directing financial flows towards green and sustainable initiatives, thereby compromising the effectiveness of green finance in Europe.
Reduced effectiveness of the Due Diligence Directive: CSDDD
The Due Diligence Directive relies on reliable reporting to identify environmental and human rights risks in value chains. If companies are allowed to reduce or delay their CSRD reporting obligations, the effectiveness of this directive would be seriously weakened. This would not only put vulnerable communities at risk, but also undermine the EU's ambition to maintain its leading role in promoting ethical business practices.
Fragmentation of Regulatory Frameworks
The EU has invested heavily in establishing a harmonized regulatory framework for sustainability.
Weakening the CSRD would risk creating inconsistencies with other regulations, increasing compliance costs for companies and undermining the integrated vision of the Green Deal.
CSRD: what are the prospects for change?
The lines are clearly drawn. On one side are those who argue for simplification in the name of economic reality. On the other are supporters of stricter reporting, who stress that transparency is essential to effectively combat the climate crisis. Here is what seems to be emerging:
- Extended Deadlines: SMEs and unlisted companies will almost certainly benefit from additional time, with initial reporting requirements likely to be postponed until 2027. Large companies, on the other hand, are expected to meet the original 2025 deadline.
- Differentiated Standards: Simplified reporting models for SMEs are likely to emerge, but their scope will be a point of debate. Policymakers must ensure that data integrity is not compromised.
- Gradual adjustments: Major structural changes to the CSRD are unlikely. Instead, we can expect gradual adjustments aimed at reducing complexity without fundamentally altering the objectives of the directive.
Why continue with the CSRD despite the uncertainties?
Companies should continue to work on this project, even if regulatory adjustments are expected.
The work already done on sustainability and CSRD reporting should not be called into question.
On the contrary, these efforts put companies on a positive trajectory, anticipating increasingly high requirements for non-financial transparency.
The integration of sustainability is not a passing trend: it is becoming a strategic imperative.
Companies that continue their preparations are not only meeting current standards, labels, and assessments such as EcoVadis, but are also positioning themselves as leaders in the sustainable transition, thereby gaining credibility and competitive advantage.
CSRD: A call to action
The stakes have never been higher. We are at a critical juncture where decisions will either strengthen the EU's position as a global leader in sustainability or mark a setback in meaningful climate action.
Simplification could ease short-term pressures, but it risks creating a gap in the ESG transparency needed to drive systemic change.
Policy makers, businesses, and civil society must work together to preserve the integrity of the CSRD and ensure that European regulatory frameworks remain aligned with the urgency of the climate and sustainability challenges we face. Stay tuned for more...
Sources consulted in January 2025:
- BusinessEurope.
- BusinessEurope Position on the Corporate Sustainability Reporting Directive (CSRD).
- European Banking Federation (EBF).
- Public Statement on the Corporate Sustainability Reporting Directive (CSRD).
- Politico EU.
- Europe’s Climate Lobbying War: Emissions and Industry Interests Clash.
- Politico EU.
- Pascal Canfin Warns Against “Unethical” Lobbying in EU Climate Legislation.
- European Commission.
- Overview of the Corporate Sustainability Reporting Directive (CSRD).
- The Times.
- Brussels Sprouts More Red Tape on Reporting.
- European Commission.
- EU Taxonomy Regulation: Data Dependencies and Reporting Standards.
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