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The Corporate Sustainability Reporting Directive(CSRD), the cornerstone of Europe's sustainable transition, is currently at the center 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 lighten certain requirements, raising a crucial question: should we focus on transparency to encourage real change, or give in to the temptation of simplifications that could reduce the positive impact of this directive?
Background: What is 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, as well as 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.
Almost 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?
Unsurprisingly, the CSRD's stringent requirements have drawn criticism. Stéphane Séjourné, a French politician, and Robert Habeck, Germany's Minister of Economic Affairs, have argued for a simplification of the framework, highlighting the difficulties faced by SMEs in implementing these complex requirements. Their argument, that regulation could end up suffocating companies under a mountain of paperwork, seems, on the face of it, reasonable. However, the question remains: are these concerns genuinely linked to feasibility, or are they the expression of powerful lobbying efforts aimed at preserving the status quo?
Recent investigations have revealed significant lobbying activity on the part of trade 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 objectives. These pressures risk undermining the directive's transformative ambitions, leaving doubts about the real intent of the simplification proposals: do they serve the general interest or particular 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 number of employees, sales and balance sheet size. While this could lighten the load for some smaller companies, it risks creating a two-tier CSRD, rewarding latecomers while penalizing those who have already invested in compliance. It also raises further questions about the implementation of the directives within the European Union.
Another of Séjourné's most controversial proposals is to "divide by ten" the number of data points required by the CSRD. Critics say such claims border on misinformation, as actual data requirements vary between 400 and 700 indicators, depending on the assessment of double materiality, far fewer than suggested. By comparison, IFRS financial standards require a similar number of indicators, covering aspects such as assets, revenues or cash flows. Yet these requirements have been widely accepted without much opposition, highlighting a difference in treatment towards extra-financial reporting.
On the other hand, defenders of the directive, such as Pascal Canfin, chairman of the European Parliament's Environment Committee, and Virginijus Sinkevičius, European Commissioner for the Environment, expressed strong concerns about the dangers of diluting the CSRD. Canfin explicitly denounced the lack of transparency on the influence of lobbying on European Commission 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 seen as constructive, they must not sacrifice the ambition for ecological transformation or hinder investment in sustainable business models. The aim of CSRD is not limited to mere compliance with sustainability reporting; it aims to make it a lever for fostering the transformation of companies towards a more sustainable model.
What are the consequences of weakening the CSRD?
The drive for simplification is not an isolated phenomenon, and its repercussions will be felt throughout the EU's sustainability ecosystem. If reporting requirements are lightened, 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 weaken the EU's objective of directing financial flows towards green and sustainable initiatives, thereby compromising the effectiveness of green finance in Europe.
Reducing the effectiveness of the Duty of Vigilance Directive: CSDDD
The Duty of Care Directive relies on reliable reporting to identify environmental and human rights risks in value chains. If companies are allowed to relax or postpone their CSRD reporting obligations, the effectiveness of this directive would be seriously weakened. This would not only put vulnerable communities at risk, but also deal a blow to the EU's ambition to maintain its leading role in promoting ethical business practices.
Fragmentation of regulatory frameworks
The EU has invested a great deal of effort in establishing a harmonized regulatory framework for sustainability.
A weakening of the CSRD would risk creating inconsistencies with other regulations, increasing compliance costs for businesses and undermining the integrated vision of the Green Deal.
CSRD: what are the prospects for the future?
The lines are clearly divided. On one side are those who advocate simplification in the name of economic reality. On the other, those in favor ofstricter reporting stress that transparency is essential to effectively combat the climate crisis. Here's what seems to be emerging:
- Extended deadlines: SMEs and unlisted companies will almost certainly benefit from extended deadlines, with the first reporting obligations probably 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. Decision-makers must be careful not to compromise data integrity.
- 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 CSRD despite the uncertainties?
Companies should continue to work on this project, even if regulatory adjustments are expected.
The work already accomplished in sustainability and CSRD reporting must not be called into question.
On the contrary, these efforts are putting companies on a positive trajectory, in anticipation of increasingly demanding requirements in terms of extra-financial transparency.
Integrating sustainability is not a passing trend: it's becoming a strategic imperative.
Companies that continue their preparation not only meet current standards, labels and assessments such asEcoVadis, but also position themselves as leaders in sustainable transition, gaining credibility and competitive advantage.
CSRD: A call to action
The stakes have never been higher. We are at a critical juncture where decisions taken will either strengthen the EU's position as a world leader in sustainability, or mark a step back from meaningful climate action.
Simplification may relieve pressure in the short term, but it risks creating a vacuum in the ESG transparency needed to drive systemic change.
Policymakers, business 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. To be continued...
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.
