Von der Leyen's announcement to cut reporting requirements was intended to foster a more dynamic and competitive economic environment by alleviating administrative burden for companies. The same intent applied to the proposal by France, Italy and Germany to create an “omnibus” legislation during the new political cycle.
Is it fair to consider sustainability reporting just as mere bureaucratic red tape..? Of course not.
It has been widely demonstrated that reporting requirements not only ensure that businesses operate transparently, and provide investors and consumers with vital information about their activities, but it also increases their financial returns.
According to the BCorp movement - made of companies that meet high standards of social and environmental performance, accountability, and transparency - the benefits of integrating environmental and social factors into business practices are numerous and undeniable. But one key advantage is that investors are increasingly recognising the importance of aligning their investment decisions with ESG factors.
A recent European Commission analysis of the EU Taxonomy’s uptake even revealed a strong correlation between high Taxonomy alignment and positive market performance. Companies disclosing strong alignment with the Taxonomy have undeniably outperformed the overall market in recent years.
By demonstrating a commitment to values beyond profit, purpose-driven companies position themselves to capitalise on the growing investor demand for ESG practices. This will eventually result in increased access to capital.
In addition, and contrary to what certain business associations repeatedly argued, a cost-benefit analysis, commissioned by the European standard-setter EFRAG in November 2022, suggested that the implementation of the ESRS would only add marginal costs to the economy, leaving companies with negligible additional costs and very limited additional burden.
At T&E, we agree that simplification and harmonisation might be needed, however, it can’t be done for its own sake. Making corporate reporting easier should only happen if the most meaningful environmental information is retained and disclosed. A “positive simplification” could therefore ensure we address companies’ concerns without undermining the essential purpose and effectiveness of the sustainability reporting framework.
Let’s take a concrete example. In the case of the road transport sector, where reporting standards are currently being crafted at the EU level, the environmental focus should be on what really matters: CO2 emissions, air pollution and fleet composition (i.e. how many ICE vs electric vehicles are in the company’s fleet).
Policymakers should move beyond a simplistic and arbitrary reduction in reporting requirements. Instead, it is imperative to develop a nuanced approach that caters to the specific needs and obligations of companies. Portraying sustainability reporting as a limiting factor to competitiveness is misleading. We think this is rather a business opportunity for the future. Therefore, the new European Commission should strongly reiterate its support to a robust sustainability reporting framework at EU level and not dilute its fundamentals.
