Stockholm (NordSIP) – At the end of February, the European Commission’s (EC) announced its Omnibus legislative proposal to simplify the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), the EU Taxonomy and the Carbon Border Adjustment Mechanism (CBAM) and lighten their burden.
On that occasion, the EC came under fire from civil society institutions who accused the changes to the existing sustainable finance infrastructure. Now, the PRI has now joined the chorus of criticism casting a shadow over the proposals.
Not All is Bad
“The Omnibus proposal has retained most of the EU sustainable finance framework’s integral parts, but the reductions in corporate obligations go too far,” said Nathan Fabian, Chief Sustainable Systems Officer at Principles for Responsible Investment (PRI).
It should be noted that the PRI’s response was not entirely critical of the proposal. “Essential elements of the CSRD and the Taxonomy Regulation have been preserved, such as reporting on impacts, alignment with sustainability goals, and assessments to do no significant harm. Changes to the EU Taxonomy are largely targeted at the technical level, and help to make the Taxonomy more usable, following the important proposals of the EU Platform on Sustainable Finance,” Fabian added.
This generally positive approach to the goals of the Omnibus’ reforms is consistent with the message delivered by the PRI, the Institutional Investors Group on Climate Change (IIGCC) and the European Sustainable Investment Forum (Eurosif), among 214 signatories of a joint letter from the financial sector at the start of February.
“We support the overall objective of simplifying and improving the coherence of the EU sustainable finance framework. Such revisions can effectively reduce reporting burdens and complexity while enhancing the usefulness of disclosure requirements and promoting a more coherent approach to the transition across the value chain,” the joint letter said.
Risky Rollbacks
However, the original endorsement was not a blank check. When the 214 signatories first wrote at the start of February, they also expressed some reticence about the entire revision process.
“Reopening these regulations in their entirety risks creating regulatory uncertainty and could ultimately jeopardise the Commission’s goal to reorient capital in support of the European Green Deal. A more effective approach would be to focus on streamlining the technical standards and provide clear implementation guidance. Moreover, the proposed legislation will have implications that extend beyond the targeted initiatives. Transparent information from the Taxonomy and CSRD is also needed to fulfil financial sector requirements, in particular the SFDR and MiFID II obligations on client sustainability preferences. The Commission must consider the wider effects of the proposals on interconnected legislative frameworks,” the joint letter argued.
This sentiment is echoed in the criticisms now aimed at last week’s proposals. “Rollbacks on the scope and implementation of these rules risk creating legal uncertainty, data gaps and transaction costs for investors and companies,” the PRI’s Fabian said last Thursday.
“While simplification is welcome, we’re concerned that the changes announced yesterday could deprive investors of vital information. Specifically, the substantial reduction in companies reporting under CSRD, including the removal of sector-specific standards, will materially reduce access to this information, which investors need to make decisions. Limiting due diligence obligations under CSDDD to direct suppliers will also substantially reduce the effectiveness of in-scope investee’s risk and impact management,” Fabian added.
“Europe will need financial institutions and corporates to work together to meet its legally binding climate, social and nature goals. Likewise, the Commission’s announcement on the Clean Industrial Deal yesterday is encouraging. To realise this goal, investors will need access to clear and actionable data based on comprehensive regulatory standards. The PRI will continue to work with its signatories and policy makers in the European Parliament and Council to promote workable sustainable finance policies in the EU that meet the needs of responsible investors,” Fabian concluded.
