Eurosif, a pan-European association that promotes sustainable finance at the EU level, is deeply concerned about the European Commission’s proposals to ease corporate sustainability reporting requirements. “Investors will be less well-informed,” warns Aleksandra Palinska.
What’s at stake?
Earlier this year, the European Commission published the so-called Omnibus I package to simplify the rules surrounding sustainability and EU investments. These rules are currently embedded in frameworks with inaccessible names like CSRD, CSDDD, and Taxonomy.
The competitiveness report by former Italian Prime Minister Mario Draghi argues that current reporting requirements overly burden companies’ competitiveness. The proposed simplifications aim to reduce that administrative load.
Doubts about Omnibus I
Aleksandra Palinska, Executive Director at Eurosif, was recently one of the speakers at a conference organized by the Federal Council for Sustainable Development (FRDO) in Brussels. Her organization says it supports simplification, but finds the Commission’s proposals too far-reaching. Eurosif fears that investors will be left with less information about the sustainability of the companies they may invest in.
“The Omnibus I proposal would reduce the number of reporting companies by more than 80 percent,” Palinska warned in Brussels. “While the proposal is intended to simplify, it has created a great deal of uncertainty for both companies and investors, as the timeline and content of the changes are still unknown.”
Another negative consequence: first movers—companies that have heavily invested in preparing sustainability reports—may now feel shortchanged.
Aleksandra Palinska at the FRDO Conference
Less reliable data
She believes that voluntary reporting by companies will not be able to close the data gap. Moreover, if the reports are prepared on a voluntary basis, they will be less standardized and therefore less comparable.
“Relying more on questionnaires, estimates, and external data providers means higher costs and less transparency. Investments in smaller companies—which represent 99.8 percent of all businesses in the EU—would become less attractive. Eliminating sector-specific standards will also result in less sector-specific information being available, which is crucial for decision-making.”
According to the Draghi report, the EU needs 800 billion euros each year to fulfill its ambitions in areas such as innovation, digitalization, and sustainability. But to get private investors on board with sustainability, those potential funders need reliable information in order to make informed investment decisions, Palinska argued.
However, she concluded that the amount of usable information on the sustainability characteristics of companies will decline under the current European plans—and that’s detrimental to categories like sustainable investing or impact investing.
“Investors need data for risk management, including sustainability risks, but also to understand the impact of their investments on the environment and society. For nearly ten years, investors have been consistently asking for improvements in the availability, quality, comparability, and reliability of information.”