The EU Is Changing Sustainability Reporting Requirements—Again
In a push for simplicity, will companies yet again need to adapt to new legislation?
TL;DR: Former European Central Bank president Mario Draghi recently pushed for a 25% lesser reporting burden on EU companies. This has been followed through by the European Commission, with president Ursula von der Leyen confirming that such simplifications of reporting directives are going to come in 2025. This is potentially good news because the current requirements are cumbersome at best. They also come with risks, though, and present yet another change that corporates in the EU need to adapt to. If done badly, this might cause the EU to lose its leading position in sustainability.
At Wangari, we hear about another new startup catering to sustainability reporting literally every week. This is not surprising, given that the sustainability reporting market is projected to increase more than four-fold over the next decade.
To clarify, Wangari is not in this market. Rather, we come in when the reporting is done. We try to make sense of sustainability data by studying its effect on corporate finance, and by using our insights to find ways for companies to be sustainable while doing well financially.
For many aforementioned sustainability reporting startups, there might be some bad news on the horizon: They might not be needed as much as they thought they would.
Former European Central Bank president Mario Draghi recently issued a report on European competitiveness, in which he pushes for cutting corporate reporting obligations by 25%. For small-and-medium enterprises (SMEs), the cuts should go further down to 50%.
Two months later, European Commission president Ursula von der Leyen confirmed her support of this measure. As a result, the new “omnibus” legislation would consolidate the Corporate Sustainability Reporting Directive (CSRD), the EU Taxonomy Regulation, and the Corporate Sustainability Due Diligence Directive (CSDDD) into one. This, so the commission hopes, should dramatically reduce the reporting burden on corporates.
This move has been widely welcomed by the larger community of sustainability professionals. It is a chance, but it is also a risk: Yet another legislation change, no matter how simplifying, might overwhelm already overburdened companies. And the new “omnibus” law needs to be written in such a way that the quality and quantity of the reported data stays the same—unless the existing directives lose their teeth.
European companies should become more “competitive”
Lightening the regulatory burden should make cross-border trade, innovation and investment easier, the EU commission hopes. The CSRD, the EU Taxonomy, and the CSDDD have in principle been written in a way that acknowledges the existence of one another, and with interoperability in mind. Nevertheless, consolidating this into a single framework might result in a simplified workflow for corporates.
For companies like Wangari, this might indeed lead to simpler data structures to fuel our analyses. However, as we have mentioned in the past, simple data can be a double-edged sword. When data is too simple and clean to reflect the messiness of the real world, then insights drawn from it are not half as valuable.
Details on how this consolidation might get implemented are not yet known, and so far von der Leyen has stated that the content of the law will not change. That being said, as long as nothing concrete has been developed, the extent to which these promises hold up remains to be seen.
If the proposed “omnibus” law fails to maintain the quality of existing reporting frameworks, this not only puts sustainability reporting startups into jeopardy. Entire industries—and Wangari, to some extent—depend on good data in order to make strategic business- and investment decisions.
In this light, this new directive is a huge opportunity, but also a risk.
Companies are already scrambling to keep up
They say that one should never change a running system. The sustainability reporting system was never truly running smoothly—greenwashing, an underdeveloped carbon market, and many other issues plagued it—but necessary tuning of the rules has left many companies overwhelmed.
One founding partner of a medium-sized asset management firm told me earlier this year that they would no longer advertise their green funds as green because they were scared of lawsuits. Indeed, the EU greenwashing directive can wreak havoc on smaller funds that want to do and say the right thing, but lack the resources to ensure compliance to the minutest detail.
This phenomenon—downplaying one’s sustainability-related efforts and track record to avoid legal and reputational risks—is called greenhushing. It has become more widespread due to such legislation and a general anti-sustainability sentiment especially in the United States.
Other directives, where fines and lawsuits are less looming, some funds and corporates choose not to invest in the necessary compliance procedures at all. In that sense, the “omnibus” law might become a boon: If it becomes easier to comply with less resources, more entities might choose to do so.
On the other hand, if companies have already invested significant resources to comply with CSRD, the EU Taxonomy, and CSDDD, they might hold off investing in “omnibus”-related compliance just yet. They might as well adapt later, once “omnibus” itself evolves or gets replaced by something else entirely.
Either way, this is yet another change to an area that is already overwhelmed with changes. While the simplification is largely welcomed, adaptation to it will nevertheless require significant work.
The Bottom Line: An Opportunity and a Risk
For sustainability reporting startups, the “omnibus” legislation might be a chance or a blow: Make the burden too light, and companies won’t need the help of startups to get the reporting done. If, however, the burden does not lighten enough to make such startups obsolete, then it might be a huge opportunity because it allows them to simplify their offering while keeping their clients happy.
For companies like Wangari, the crucial point will be whether the European Commission delivers on its promise to reduce the reporting burden while keeping the data content the same. Only then can Wangari extract a maximum of insights from the reported data and make it work in service of the issuing companies, their financiers, and the planet at large.
What We’re Reading at Wangari
At Wangari, we’re convinced that consumers are already doing what they can to save the planet. We’re trying to hold businesses and their financiers accountable for doing their part to make this world more sustainable. That being said, it’s heartening to read
’s suggestions on how to reduce waste as a simple citizen. Top of our minds, fresh from her piece Unassuming Waste: A cookie swap, where each person brings one type of cookie, and everybody leaves with an assorted tray. Perfect for the holiday season (or any season, really—cookies are great).Did Brexit bring sustainability benefits? As
writes, yes, because in the Agricultural Act farmers get paid for sequestering carbon or increasing biodiversity. That being said, post-Brexit Britain’s laws are also more highly dependent on whichever party is currently in power. Labour push for some more progress on the sustainability front, but this might be overturned again in future elections. (Besides, much of Brexit wasn’t that good for Britain at all!)Wangari is all about bringing down silos between sustainability professionals and financial analysts in order to drive change. In a similar vein,
writes that ESG departments have a fantastic opportunity to influence the trajectory of their business because they gather so much data and evaluate it. There are many complex reasons behind why this isn’t happening yet, but either way this is a worthwhile read: Trust imagination: ESG data and setting a vision for change.