As part of the Green Deal, the European Union is poised to lead the world in sustainability and climate related disclosures by businesses. When the Corporate Sustainability Reporting Directive was proposed in 2021 it was met with broad support. However, as implementation comes closer, leaders throughout the EU are having second thoughts that the reporting standards will pose too much of a burden on businesses, leaving the EU at a disadvantage in a global market. In an interview with Le Journal du Dimanche, French Prime Minister Michel Barnier indicated a desire to roll back the scope of the CSRD.
Initially proposed in April 2021, the CSRD increases existing reporting requirements for businesses operating in the EU. The proposed directive replaced the existing Non-Financial Reporting Directive, greatly expanding the scope of the reporting and the number of impacted businesses. The new reporting requirements go beyond traditional financial reporting to include environmental, social, and governance actions of businesses.
The drafting of the actual reporting requirements to be used by businesses under the CSRD was delegated to the European Financial Reporting Advisory Group. EFRAG completed the first set of the European Sustainability Reporting Standards from June 2021 to April 2022. The proposed ESRS were open to public comment from April to August 2022. The first round of ESRS were adopted by the European Commission in July 2023, going into effect January 1, 2024, for reports filed in 2025.
While the CSRD was adopted at the EU level, enactment takes place through legislation adopted by member states. When a directive is entered into the the official journal, it begins a ticking clock. Member states then have a set amount of time to pass legislation. For the CSRD, that deadline was July 6.
When the deadline passed, only eight of the 27 EU member states had fully implemented the CSRD into national law. On September 26, the European Commission released a series of infringement decisions relating to five directives, including the CSRD. Seventeen member states were found to be out of compliance with the directive. The European Commission gave those countries two months to comply or face penalties.
However, the delay in implementation is an indicator of a broader problem facing the CSRD. Initially, the new green directives were met with little resistance. Countries were eager to showcase their environmentally friendly actions. However, as the regulations began to pile up and business saw the repercussion of the actions, a green pushback began.
This anti-green rhetoric fed into the elections for the European Parliament in June 2024. The conservative European People’s Party ran a campaign that blamed many of the burdens on businesses on the green deal. It worked. The EPP gained seats. Environmentally friendly political parties did not fare as well. The Greens-European Free Alliance and Renew Europe both saw significant losses.
The victory by the EPP is indicative of a broader green pushback. People seem to like environmentally friendly policies, until they must start making personal sacrifices. It is one thing to say you are worried about climate change. It is another to completely change your lifestyle to end carbon emissions.
Many climate activists were concerned that the new parliament will begin to rollback previously adopted environmental laws. Even the most optimistic believes that the result will be a significant watering down of the remaining Green Deal initiatives. Various organizations involved in the implementation of EU directives quietly paused work to see what direction the new leadership will take. Now those concerns are being validated.
In an interview with Le Journal du Dimanche, French Prime Minister Michel Barnier stated:
“In particular, we want to tackle the over-transposition of European rules when it creates a competitive deficit for farmers and businesses compared to our neighbours. In particular, I have the idea of a mechanism – a form of moratorium, for example – that could postpone by two or three years the dates of entry into force of very burdensome regulations, sometimes taken without sufficient assessments and impact measurement. In the period we are going through, I am aware of the efforts that we are asking of those who work and produce without, in addition, being imposed with unreasonable standards and constraints. This is particularly true for European texts such as the CSRD directive, the scope of which should be re-examined.” (translated)
With a majority of EU countries failing to implement the CSRD, there is a clear opportunity for those wishing to make changes to minimize its impact. This will most likely come in the form of raising the minimum standards for required reporting, removing small and medium sized enterprises from the reporting requirements. It will also most likely include removing the reporting requirement for non-EU based companies. As the new EU Parliament and Council get settled, watch for proposals to make changes to sustainability reporting requirements.
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