The European Commission’s recent proposal to simplify sustainability reporting under the Corporate Sustainability Reporting Directive (CSRD), Corporate Sustainability Due Diligence Directive (CSDDD), and EU Taxonomy Regulation has been met with a mix of cautious support and deep concern.
Yesterday, the European Commission launched proposals to cut red tape and enhance EU competitiveness, aligning with the Draghi report’s recommendations. The first omnibus packages aim to streamline sustainability reporting by focusing obligations on larger companies with significant environmental and social impacts while easing the burden on smaller firms. Key measures include making sustainability reporting more efficient, simplifying due diligence for responsible business practices, strengthening the carbon border adjustment mechanism for fairer trade, and unlocking opportunities in European investment programmes.
The new regulatory changes aim to ease compliance for European businesses, but investors and sustainability advocates worry that cutting back reporting requirements too much could make it harder to access vital ESG data and support long-term sustainable investments.
The European Fund and Asset Management Association (Efama), the trade body, welcomed the proposal as a necessary step towards reducing the regulatory burden on companies while maintaining the ambitions of the EU Green Deal. Key positive changes include the retention of double materiality assessments—essential for asset managers to evaluate sustainability risks—and the avoidance of sector-specific reporting under the European Sustainability Reporting Standards (ESRS). However, Efama also flagged concerns over delayed CSRD reporting and an “opt-in” approach to EU Taxonomy reporting, leaving investors dependent on third-party ESG data providers. Clarification is needed on whether asset managers’ climate transition plans apply to their business activities or extend to all managed assets, it added.
The current simplification drive by policymakers is an opportunity to ensure cohesion and efficiency across all sustainability regulations,” said Tanguy van de Werve, director general, Efama. He stressed the importance of aligning financial sector reporting under the Sustainable Finance Disclosure Regulation (SFDR) with any changes made to corporate reporting.
Market participants also acknowledge that while reducing complexity in sustainability reporting is beneficial, it could come at the cost of transparency. Anne Shoemaker, senior director for ESG product management at data provider Morningstar Sustainalytics, warned that postponing CSRD requirements would result in less ESG data than anticipated, making it harder for investors to assess corporate sustainability. She noted that companies removed from the scope might still choose to report voluntarily, particularly to maintain better access to sustainable finance. “If green and sustainable funds remain required to report their taxonomy alignment, this will continue to create an incentive for investee companies to disclose their taxonomy numbers,” Shoemaker said.
Thomas Richter, CEO of the German Investment Funds Association (BVI), acknowledged the EU Commission’s initiative as a positive step but stressed that reforms must go beyond the company level. “This initiative is good. However, the EU Commission cannot stop at the company level but also has to reduce the reporting requirements for asset managers at the same time,” he stated, highlighting that asset managers depend on ESG company data to meet their own obligations.
Richter also expressed concerns about the current state of sustainability regulation, arguing that it has become excessive. “Sustainability regulation has overshot the mark by far. Half-hearted tinkering is not enough to turn the tide,” he warned. Instead, he called for a comprehensive shift towards more practical regulations that benefit regulators, the industry, and investors while effectively supporting sustainable investing.
While the reforms introduce much-needed simplifications, they risk being seen as “deregulation rather than streamlining”, according to Tom Willman, regulatory lead at sustainability tech company Clarity AI. “Access to high-quality sustainable data remains essential for investors both within and outside the EU,” he shared, highlighting that long-term competitiveness hinges on stability and transparency. Willman also warned against the risks of legislative volatility, noting that broad regulatory changes implemented within a short timeframe and with limited consultation could undermine market confidence.
Drastic changes to the scope of sustainability reporting rules will limit investor access to comparable and reliable sustainability data and impair their ability to scale-up investments for industrial decarbonisation and long-term growth, according to Aleksandra Palinska, executive director at the European Sustainable Investment Forum (Eurosif). “The proposal aims to reduce the number of in-scope companies by over 80%, she pointed out.
Voluntary reporting from companies will not fill this data gap, said Palinska. Commenting on the proposals for changes to the Corporate Sustainability Due Diligence Directive, she added: “Climate transition plans are necessary for investors to assess the credibility of companies’ decarbonisation trajectories. Deleting requirements for the largest EU companies to implement transition plans and watering down the rules on environmental and human rights due diligence across their value chain would detrimentally impact the ability of investors to allocate capital for industrial decarbonisation, to conduct forward-looking risk assessments and to support the transition to sustainable growth.”
In a recently published statement, investors have been calling on the EU Commission to “preserve the integrity and ambition” of the EU’s sustainable finance framework. The statement was developed together by Eurosif, IIGCC and PRI, and signed by over 200 financial sector actors, including 163 asset owners and asset managers with a combined €6.6 trillion assets under management.
Source: Fund Europe
