EU Leadership Plans To Revamp Business Climate Regulations

Following an informal meeting of Council leadership in mid-November, Ursula von der Leyen, President of the European Commission, announced her intention to revamp three key sustainability regulations to reduce the burden on businesses. While she states she supports the content of the existing laws, climate activists are concerned this move signals a watering down of gains made towards reaching their climate goals. For businesses impacted by the regulation, it brings uncertainty as reporting deadlines approach.

As part of the European Green Deal, a series of directives were passed by the EU to force businesses to address climate change and report carbon emissions. The goal is to comply with the climate initiates of the Paris Agreement, an international treaty signed in 2015 to prevent climate change. Notably, the Paris Agreement included a goal of reducing greenhouse gas emissions to net zero by 2050. This Net Zero 2050 goal considered carbon offsets and reduction of overall GHG emissions. The EU addressed this through three key legislative actions.

In 2020, the EU adopted the EU Taxonomy for Sustainable Activities. The Taxonomy created a classification system for business and investors to know what activities are considered green or climate friendly.

Then followed the Corporate Sustainability Reporting Directive in 2023. The CSRD created requirements for businesses to report GHG emissions and other environmental, social, and governance actions. For large companies, general reporting begins in 2025 for fiscal year 2024. Small and medium sized companies, non-EU based companies, and companies in high emission sectors will see reporting requirements being drafted and released over the next year.

The final piece, the Corporate Sustainability Due Diligence Directive, was adopted in May 2024. The CSDDD, or CS3D, created additional reporting requirements, as well as legal liability, for companies in relation to their supply chain. The intent is to not only regulate the direct actions of a company, but also assure their suppliers comply with climate and human rights goals. However, the CSDDD faced significant pushback during the final stages. Only finding approval after significant changes that reduced the scope.

For those outside climate circles, the interplay between the three regulations is often unclear. The business sector has been singularly focused on complying with the various reporting standards and overwhelmed by the requirements. Businesses voiced concerns that the new regulations were overly burdensome and came with an excessive cost.

During the 2024 European Parliament elections, the regulatory burdens on business played a significant role. The conservative European People’s Party ran a campaign that blamed many of the burdens on businesses on the green deal. It worked. The EPP gained seats. Environmentally friendly political parties did not fare as well. The Greens-European Free Alliance and Renew Europe both saw significant losses.

There has been a clear trend towards making changes. In her 2023 State of the Union speech, von der Leyen, expressed concerns relating to the over regulation of SMEs. In an interview with Le Journal du Dimanche on October 20, French Prime Minister Michel Barnier indicated a desire to roll back the scope of the CSRD. In her confirmation process, the new Commissioner for Financial Services and the Savings and Investments Union, Maria Luís Albuquerque, has expressed a desire to streamline reporting requirements.

It was therefore not a surprise that von der Leyen proposed restructuring the EU Taxonomy, CSRD, and CSDDD into a single piece of regulation through an omnibus proposal. In a press conference following an informal meeting of EU leadership on November 8, von der Leyen stated they will have an omnibus bill that will take “a huge approach to reduce in one step, in all the different fields, what is agreed is too much today. We will look at the triangle Taxonomy, CSRD, CSDDD.”

Further, she stated, “important is, and this is something we agreed also in the informal Council today, the content of the laws is good. We want to maintain it and will maintain it. But the way we get there, the questions we are asking and the data points we are collecting, thousands of them, is too much. Often redundant. Often overlapping. So, it is our task to reduce this bureaucratic burden without changing the correct content of the law that we all want.”

This statement, which has started to gain more attention, immediately upset climate activists. Looking at the recent action on the EU Deforestation Regulation, any reopening of a law allows for changes to be proposed and made. This creates not only an opportunity for activists on both sides to amend the legislation, but brings uncertainty to businesses who are faced with the task of preparing for reporting standards that may change in the near future.

Expect to see the omnibus proposal in the middle of 2025.