EU Faces Setback as Green Reporting Standards Risk Being Weakened

The European Union stands at a crossroads these days, as it is deliberating policy reforms that would compromise its long-term sustainability and environmental goals. In the midst of intensifying climate issues and ongoing economic insecurities, recent European Commission proposals, including the Omnibus Simplification Package, have been criticized as having the potential to water down the Corporate Sustainability Reporting Directive (CSRD). This rule, the centerpiece of the EU's green policy package, requires large and listed companies to provide consistent environmental, social, and governance (ESG) disclosures. These disclosures are required for long-term investor and climate accountability transparency.

According to current CSRD provisions, a resounding 83% majority of companies that filed their reports through the Carbon Disclosure Project (CDP) in 2024 had their compliance requirements fulfilled. But if those proposed revisions become law, that number could drop by 40%. Thousands of companies already in compliance with ESG reporting obligations could be exempted from subsequent reports. The revision would be a reversal of environmental data collection and would undermine corporate responsibility across the EU. The EU would not be streamlining regulation; it would be reducing necessary oversight of climate-related performance.

This follows as mounting evidence indicates that sustainability is not an expense but a source of economic advantage. European companies, according to CDP data, estimated some €3.47 trillion of climate opportunities, an amount significantly higher than the €620 billion of projected investment costs incurred. This difference suggests that green compliance can be a long-term benefit and help companies reduce risks while also increasing profitability and innovation.

In recent years, most European companies have already adopted sustainability norms. CDP reports that around 80% of listed companies on European stock exchanges have reported, indicating broad voluntary use of sustainability reporting practices. Small and medium-sized enterprises (SMEs) are also joining in. During 2022-2023, this collective approach led to a 3% reduction in emissions and an equivalent 3% uplift in revenue, and proved that ESG-driven measures can provide measurable results.

Dilution of the CSRD would disturb this beneficial trend. Early movers among companies in terms of transparency and ESG integration could find themselves at a disadvantage when compared to comparators that are no longer subject to such reporting mandates. In addition, this policy reversal can impair financial system stability. Supervisory institutions, including central banks like the European Central Bank, have underscored the necessity of reliable environmental data for managing long-term economic risks posed by climate change.

Rather than scaling down its commitments, the EU is urged to focus on simplifying the implementation of ESG policies without sacrificing their effectiveness. Among the most important proposals is to help companies, particularly SMEs, with better access to finance, capacity-building measures, and digital tools that allow compliance without losing transparency. This would guarantee the quality of sustainability information as well as making it more feasible for companies to implement reporting requirements.

A roll back of the most significant environmental regulations at this juncture would also give conflicting signals to global stakeholders. As other large economies like the United States are being criticized for weakening their own environmental commitments, the EU can take the lead. Rolling back ESG reporting requirements can dilute the reputation of the EU and diminish its position in global climate talks.

Europe's green transition policies are designed not only to address ecological risks but to build long-term economic resilience. The CSRD has led the way in making companies act with transparency and accountability in their environmental impact. The proof is behind the course the EU had already started down—one driven by scientific evidence, market forces, and economic rationale. To reverse course from such commitments threatens to undermine environmental goals as well as economic competitiveness.

With the EU considering its next move, it is whether to continue a road of responsible, accountable sustainability or to retreat to pressure in a way that is counterproductive to long-term gain. What it chooses will either keep it being respected as a climate action leader or not. 

Source/Credits:
KnowESG; Source: CDP Europe