B Lab, GSG Impact and Faber urge EU not to dilute sustainability reporting rules
The EU’s position as a leader in building sustainable economies is at risk, warn impact leaders, as complex sustainability laws are threatened by the bloc’s drive to become more competitive.
Impact economy leaders including Emmanuel Faber, B Lab and GSG Impact have called on the European Commission not to dilute rules that force companies to disclose their social and environmental impact in an upcoming simplification package.
The EU Commission has pledged to simplify its complex corporate sustainability reporting laws as part of its ‘competitiveness compass’, described as “a framework to rekindle economic productivity and secure the EU’s competitive edge”.
The ‘Simplification Omnibus’ package will be submitted to the EU Parliament later this month. The rules, which require financial institutions and big companies to disclose their impact on society and the planet, have been under fire for imposing unnecessary costs on companies, especially smaller businesses.
But concerns have emerged that simplification would lead to sustainability reporting legislation – essential to keep companies’ environmental and social impact in check – losing effectiveness.
“Simplification must support – not dilute – sustainability efforts,” B Lab Benelux wrote in a LinkedIn post.
Simplification must support – not dilute – sustainability efforts
A coalition of impact organisations, including B Lab Global, GSG Impact and Social Value International, welcomed a simpler framework but warned of the risks involved. In an open letter, the coalition partners said: “While we acknowledge the merit in streamlining certain data points to avoid redundancies, we strongly urge these changes to be made without compromising the integrity of the standards.” This refers to the EU’s sustainability reporting standards, which have been created as a basis for sustainability reporting.
The letter was signed by Katie Hill (pictured) and Wojtek Baginski of B Lab Global, Elizabeth Boggs Davidsen, CEO of GSG Impact, and Sarah Olsen, CEO of Social Value International.
In particular, the coalition focuses on the “double materiality” principle in sustainability reporting where corporates must consider both the impact of their activities on society and the environment as well as the impact of social or environmental risks on their businesses.
The open letter continues: “Double materiality is essential for understanding the dual dimensions of sustainability impacts. Crucially, impact materiality helps identify and address individual corporate impacts that collectively lead to systemic risks – such as climate change, biodiversity loss, and social inequalities.
“Furthermore, impact materiality raises awareness of the urgent nature of these challenges and galvanises positive action from both corporates and financial market participants to address them effectively through proactive impact investing strategies.”
A B Lab Europe blog, introducing the open letter, concluded: “By safeguarding these principles, the EU can retain its leadership in sustainable finance and continue fostering an inclusive, equitable, and regenerative global economy.”
A ‘major burden’
In recent years, the EU adopted a number of directives that require financial institutions and big companies to disclose their impact on society and the planet, as part of the European Green Deal. Those include the Corporate Sustainability Due Diligence Directive (CSDDD) that requires large EU and non-EU companies to conduct environmental and human rights due diligence across their supply chains, and the Corporate Sustainability Reporting Directive (CSRD), which asks companies to report sustainability performance following EU standards.
Initially hailed for bringing more impact transparency and countering greenwashing, the laws were later criticised for the complexity of their implementation and costs involved, in particular for smaller businesses, which, while not directly required to produce sustainability reports, end up having to do so because they are part of a bigger company’s value chain, or to access investment.
The Commission’s simplification proposal follows a report published last year that found excessive regulation was stifling competitiveness and innovation in the union. The Draghi report on European competitiveness called the EU sustainability reporting requirements a “major source of regulatory burden”, and criticised their compliance costs, in particular for smaller businesses, due to excessive complexity, lack of clear guidance and overlapping or inconsistent requirements between various pieces of legislation.
In the first major economic initiative of its 2024-29 mandate published at the end of last month, the Commission announced the omnibus simplification package will “cover a far-reaching simplification in the fields of sustainable finance reporting, sustainability due diligence and taxonomy”.
Writing in the Financial Times, EU Commission president Ursula von der Leyen and Christine Lagarde, president of the European Central Bank, called the package an “unprecedented simplification effort”.
Elsewhere, opponents of the Omnibus package argue that the EU has bent to pressure from political and big-business lobbyists.
Competitiveness and transparency do not conflict
Making a separate point, Emmanuel Faber (pictured), former CEO of Danone and sustainable business advocate, said: “Competitiveness and transparency do not conflict; in my 20 years as a CEO, I have found that they reinforce one another. It’s all a matter of balance.”
He added: “In today’s global context, the EU has a major role to play in setting an agenda that puts sustainability at the heart of finance and gives companies the means to fund their transition to more resilient economic models reflecting the Green Deal ambitions.”
In September a report published by GSG Impact based on consultations with more than 500 stakeholders around the world, found that international reporting requirements such as the EU’s would put small entities that are part of big companies’ supply chains under pressure to report on their impact. In much of the Global South, many small enterprises “even lack basic resources to perform the simplest accounting practices”, let alone a sustainability audit, according to the report.
The sustainable development sector in Latin America was also concerned that the EU sustainable reporting regulations could push small enterprises in developing markets “out of global value chains”, Pioneers Post reported.
The EU Commission stated that the omnibus simplification package would “notably address the trickle-down effect to prevent smaller companies along the supply chains from being subjected in practice to excessive reporting requests that were never intended by the legislators.”
Global alignment
Faber also pointed out that the simplification could have a global impact. This is because the international sustainability reporting standards set by the International Sustainability Standards Board, which he chairs, were aligned with the EU’s rules to make it easier for other countries to do business with the bloc. The ISSB standards have now been adopted by countries representing more than half of the EU’s trade market, according to Faber.
- Read more: ISSB unveils first global sustainability standards in bid to restore trust in company reporting
The coalition backs this argument, saying that regulatory alignment between EU and international standards “facilitates a cohesive and unified approach to sustainability reporting across jurisdictions”.
It continued: “This systematic approach not only ensures robust reporting but also drives meaningful action towards sustainability outcomes. Any dilution of this framework risks fragmenting progress and reducing its effectiveness in fostering transparency, accountability, and impact management.”
Top image: Ursula von der Leyen announces the EU's 'competitiveness compass' on 29 January. Credit: European Union, 2025.
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