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The ESG Review: Has an EU climbdown on ESG reporting begun?

It’s no secret that the ambitious European Union agenda to lead the world in legislation which drives sustainable transformation has been coming under greater scrutiny.

The flagship Corporate Sustainability Reporting Directive (CSRD) came into force this month, compelling many larger companies in the EU or with operations in the bloc to report on emissions far more transparently, and so upping the ante.

And we’ve now seen the first major move to soften the way that such rules are applied, with the news this week that companies in several high-emitting sectors are being given another two years’ grace before they have to comply with the new stipulations.

The delay covers the oil and gas, mining, road transport, food, cars, agriculture, energy production and textiles industries. While the change still needs approval at EU member state level, it has been blessed by the European Parliament’s legal affairs committee.

Previously, relevant companies were going to be compelled to include detailed emissions disclosures in their annual reports from this year. The move buys the EU time to develop applicable quality standards and the companies more runway to ensure they can be put into practice effectively.

But as Reuters put it, “It is the latest sign of how climate-related rulemaking is facing some pushback in the EU after a welter of legislation, echoing a larger backlash in the United States, as policymakers seek to ease red tape on companies to boost growth.”

With European Parliamentary elections happening this June, we can expect the implementation of the CSRD to continue to be used as a political football.

The scope of the CSRD is vast. While at first it will apply to publicly-traded and large private companies, it will then expand to include small and medium-sized businesses too.

Forbes reported that the standards the EU needs to develop to implement the new rules “ran into significant delays as the drafting turned out to be more complicated than originally considered.”

That may be, but regardless of bureaucratic complexities, the decision will be seen as a softening of the stance on how some of the more incisive measures in the new legislation are applied.

Meanwhile, in France the new directive has already been incorporated into national law, with the provision that company bosses who fail to comply with it risk being jailed - which is one way to reduce emissions.

Over time, the question is whether this week’s decision will be viewed as a necessary bump in the road to ensure that this aspect of the EU’s sustainable transition plans are implemented effectively, or whether it signals a climbdown that will see a broader loosening of the leash.

The ESG News Review is written by Steve Earl, a Partner at PR agency BOLDT.

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