“In Europe, the new climate directives are already being dismantled”

In this year when we will celebrate the tenth anniversary of the Paris Agreement, sustainability regulations are thus being attacked from all sides. These attacks reflect growing desires for deregulation — or simplification — in the wake of the Trump administration coming to power and the 2024 European elections.

The European Commission recently presented a proposal aimed at simplifying sustainability regulation. By reducing the scope of certain parts of its flagship legislation — officially to strengthen the EU’s competitiveness — this “Omnibus reform” is seen by some as a veritable “bonfire of environmental bureaucracy” whose influence is spreading even to our borders.

“While the debate is only just beginning within the EU, Switzerland has every interest, on the one hand, in waiting to see concretely how far the adaptations at EU level will go, and on the other hand, in critically questioning its own regulation,” reacted the umbrella organisation economiesuisse.

But in Europe, will this bonfire produce the expected effects? We discuss it with Ophélie Mortier, Head of Sustainability and Impact at DPAM.

What does this famous “Omnibus simplification” imagined by the European Commission include?

This proposal should notably impact three key regulations applying to companies: the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD) and the EU taxonomy.

As a reminder, the CSRD aims to push companies to report on their overall environmental and social impact, in order to better understand the interaction between their activities and their environment.

The CSDDD, for its part, is a sustainability directive that incorporates the major international frameworks related to human rights. It requires companies to identify and assess environmental and social risks throughout their supply chain.

Finally, the EU taxonomy aims to identify economic activities compatible with climate objectives. It allows the determination of those considered sustainable, provided they do not harm other environmental objectives.

To justify this revision, companies invoke a loss of competitiveness vis-à-vis non-European competitors, such as China or the United States, where ESG regulations are deemed more flexible.

Why does the EU want to revise its three major regulations?

This simplification package has sparked intense debates, notably because it involves a revision of the texts’ implementation timetable. While the CSRD and CSDDD directives have only just come into force, they are already subject to a beginning of dismantling.

To justify this revision, companies invoke a loss of competitiveness vis-à-vis non-European competitors, such as China or the United States, where ESG regulations are deemed more flexible.

This political orientation also seems motivated by the economic stagnation of several large European economies. Yet, to date, no clear link has been established between sustainability regulatory requirements and the competitiveness difficulties mentioned.

Has the EU overestimated companies’ ability to adapt?

It should be recalled that the Corporate Sustainability Reporting Directive (CSRD), whose first obligations come into force this year and in the middle of next year, is the result of more than four years of negotiations involving all stakeholders — including the companies themselves.

Many of them have already begun to comply, the directive having been transposed into national legislation in several Member States, such as Belgium. They have thus begun interpreting the principle of double materiality, while incurring costs to collect the necessary data and meet auditors’ verification requirements.

While the majority of companies recognise the value of having reliable and standardised ESG data — notably on CO₂ or greenhouse gas emissions — some nevertheless consider that compliance with the CSRD, which is highly prescriptive, represents a significant cost. External verification, although essential in the process, is perceived as an additional burden.

Both companies and investors today demand stability, after a wave of regulations with sometimes unclear timetables and uncertain interoperability, a source of many uncertainties.

Companies are also attacking the content of the directives…

While the debate initially focused on the timetable, companies are now attacking the very content of the texts. A consensus seems to be emerging on the need to reduce the number of topics on which companies must report.

However, the current proposal only marginally changes the content: it mainly revises the scope. Nearly 80% of the companies initially covered by the directive would thus be exempt from the reporting obligation.

Originally, it mainly targeted large companies, while SMEs could draw inspiration from the standards set by the largest. To lighten the obligations, some believe it would have been wiser to reduce the number of indicators to be reported rather than reduce the scope. 

SMEs play a key role in European growth and in the recovery of competitiveness. It is crucial that capital continue to flow to them, and transparency remains an essential lever for investors. The goal is not to tick the boxes of a long checklist, but to provide useful, clear and relevant information to those who finance the economy.

Does this simplification not introduce new uncertainties?

The simplification initiative is, in itself, welcome. But it must not weaken the initial ambitions. Both companies and investors today demand stability, after a wave of regulations with sometimes unclear timetables and uncertain interoperability, a source of many uncertainties.

For companies, this “pause” could offer an opportunity for clarification. The European Parliament voted on 1 April for a “stop the clock” process. The next steps of the regulatory process now involve the European Parliament and the Council approving the proposal, which means it will probably be necessary to wait between 12 and 15 months before things become clearer. And given the tensions already observed around the CSRD and the CSDDD, nothing guarantees that the debate will be simpler with a new Parliament.

In the meantime, the absence of reliable, standardised and timely ESG data forces asset managers to turn to estimates and third‑party ratings, which are often costly.

The European single access point will play a central role here. It is essential to have raw, objective and quantitative data, directly from the companies themselves. Because ESG ratings alone do not allow investors to credibly assess companies’ transition trajectories.

In the absence of reliable data on companies’ transition plans, the risk of greenwashing increases considerably for investors engaged in ambitious initiatives.

What solutions do you recommend?

The key question is as follows: how can ESG information be made to be perceived as a strategic lever, and not as an administrative constraint?

ESG data are essential to identify both risks and opportunities — whether it is, for example, spotting assets that have become toxic or better anticipating systemic disruptions. ESG must be integrated into the company’s overall strategy, rather than being seen as a mere compliance burden.

In a world where resources are limited, shortages cannot be managed without a framework. Environmental challenges will inevitably lead to social tensions, which will make corporate governance even more complex.

Europe, as a large market and a global financial centre, needs regulations that support both its economic sovereignty, its competitiveness and the financing of the transition. These rules must rely on greater transparency, reliable data and more robust forecasts. Fewer surprises means more resilience. In an uncertain and volatile context, it is essential to focus on the materiality of ESG issues, while maintaining investment convictions and sustainable performance.

The financial world and the business world must work together towards intelligent simplification, returning to the initial objectives of these regulations while promoting the growth and competitiveness of the EU. Transparency and stability are more important than ever.

How could this simplification threaten the carbon neutrality ambitions to be achieved by 2050?

As mentioned above, in the absence of reliable data on companies’ transition plans, the risk of greenwashing increases considerably for investors engaged in ambitious initiatives such as the Net Zero Asset Managers (NZAM), without always having the means necessary to verify compliance with commitments made.

To date, the revision project included in the Omnibus initiative still provides that companies — at least those within the new regulatory perimeter — have an energy transition plan accompanied by an implementation plan. However, they are not required to report on the effective implementation of this plan.

Furthermore, the fact that engagement initiatives on ESG issues are now more constrained — both by the Omnibus and by the current geopolitical context — places an additional risk on investors’ shoulders. Indeed, a taxonomy alignment figure, expressed as a percentage of CAPEX, is only a preliminary indication of a company’s level of climate ambition. This signal needs to be complemented by other data, obtained notably through targeted questions during dialogues and engagement processes.

One must hope that companies will continue to respond to these solicitations, without resorting to a regulatory joker to evade sensitive topics.

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