The European Commission’s decision to scale back its key sustainability reporting regulations could pose challenges for investors seeking to allocate funds toward the bloc’s climate objectives.
Since the 2015 global agreement on climate action, Europe has led efforts to transition the real economy toward net-zero emissions by 2050. This includes setting standards for defining “green” investments and requiring companies to disclose their environmental footprints, leading to a sharp rise in new European financial products aligned with the bloc’s climate goals, which include a near-term aim to cut net emissions by 55% by 2030.
The European Commission on Wednesday laid out plans to trim the reporting burden on firms due to the growing pressure from companies with the EU government offering to help struggling industries along with Donald Trump’s rejection of climate action.
In addition to slashing the number of companies that have to report data, the EU executive proposed scaling back a landmark supply chain due diligence law and softened penalties for those that breach it.
Supporters argued that these changes would enable companies to concentrate on reducing emissions rather than completing paperwork; critics warned that it would complicate the process of comparing companies’ actions
“By introducing broad exemptions and postponements, the proposal risks undermining critical sustainability objectives,” said Hyewon Kong, Sustainable Investment Director at investor Gresham House.
In addition to cutting by over 80% the number of companies required to report emissions data under the Corporate Sustainability Reporting Directive and extending deadlines for others, Brussels has abandoned plans for sector-specific reporting standards.
“This information is essential for… assessing the alignment of companies with the goals of the Paris Agreement,” Ashley Hamilton Claxton, head of responsible investment at Royal London Asset Management, said.
EU officials opined that the moves would not weaken the bloc’s climate targets but rather make it easier for companies and investors to implement them in the real world.
The European Commission’s decision to scale back sustainability reporting requirements under the Corporate Sustainability Reporting Directive (CSRD) has sparked concerns among investors, advocacy groups, and sustainability experts.
While smaller companies could report voluntarily, the proposed rules would limit what extra sustainability information banks and other investors could ask them to share. Datamaran’s CEO warned that the lack of information on reduced corporate disclosures could make it difficult for investors to “connect the dots” on risks that impact company valuations.
The EU’s “taxonomy” system, designed to classify environmentally sustainable economic activities, will also be affected. With 80% of companies released from mandatory reporting under this system, investors may struggle to choose which firms are genuinely contributing to environmental progress.
By delaying reporting deadlines for many firms until close to the EU’s 2030 emissions-cutting target date, Brussels may hamstring its ability to meet the goal, said Matthew Fisher, head of policy at sustainability firm Watershed, in Reports.
“If you delay and pause that disclosure and transparency, it undermines these very ambitious goals,” he added, “I don’t think those two things are consistent, fundamentally”.