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September 13, 2023

EU competitive pledges could impact sustainability reporting

The EU has promised to support industry through the energy transition (Photo: Kenzo Tribouillard/AFP via Getty Images)
The EU has promised to support industry through the energy transition (Photo: Kenzo Tribouillard/AFP via Getty Images)

European Commission president emphasises the bloc’s intention to support the clean industry through improving access to finance and cutting red tape as EU companies face competition from markets offering ‘huge subsidies’

Promises by European Commission president Ursula von der Leyen in her annual State of the European Union speech to support industry through the energy transition, while reducing administrative burdens on companies in the name of competitiveness, have raised concerns that even larger companies could be exempted from sustainability reporting requirements.

The EU Green Deal was the “centre piece” of the bloc’s economy, von der Leyen told members of the European Parliament in Strasbourg today. The policy was “born out of the necessity to protect our planet” and “defined as an opportunity to preserve our future prosperity,” she added.

The Green Deal has become an “economic agenda” offering a “clear sense of direction for investment and innovation” and shows “modernisation and decarbonisation can go hand in hand,” said von der Leyen.

“We will keep supporting EU industries throughout the transition, they can rely on that,” she pledged, announcing a series of “clean industry dialogues”.

Von der Leyen cited the EU wind industry as a “success story”, but highlighted, as Sustainable Views has reported, the “unique mix of challenges” facing the industry. She promised a package that would tackle some of these issues by further fast tracking permitting and improving auctions, skills, access to finance and creating a stable supply chain.

“From wind to solar to batteries to electric vehicles, our ambition is crystal clear,” said von der Leyen. “The future of our clean tech industry has to be made in Europe. This is our task.”

EV subsidy probe

“Our industry likes competitiveness,” said von der Leyen, but only if it is “fair”. Too often EU companies are excluded from foreign markets or face competition against countries offering “huge subsides” for specific industries, she said, announcing an anti-subsidy investigation into electric vehicles entering the EU from China.

Walburga Hemetsberger, CEO of industry group SolarPower Europe, welcomed von der Leyen’s “commitment to critical industry made in Europe, and that Europe will do whatever it takes to keep its competitive edge,” but insisted her promises “must translate into action”.

“Solar project developers face inflation-driven headwinds,” said Hemetsberger in a press statement. “Europe’s solar manufacturers are at risk of bankruptcy.”

Giles Dickson, CEO of WindEurope, gave a similar reaction. “It’s very good the Commission are going to do a dedicated wind package,” he told Sustainable Views in an emailed statement. “It can’t come soon enough given the crisis our industry is facing now. President von der Leyen is absolutely right, it is essential that wind energy continues to be made in Europe.”

Cutting red tape

Part of the EU’s efforts to “make it is easier to do business” and to help companies to be competitive is to reduce administrative burdens, believes the commission. Earlier this week, the EU executive proposed a package aimed at offering “relief” to small and medium sized businesses.

“Smaller companies do not have the capacity for complex administration,” von der Leyen said in Strasbourg. “It means they do less with the time they have and miss out on opportunities to grow.”

During her State of the Union speech, she pledged to appoint an SME envoy who would report directly to her and, next month, to propose plans to “reduce EU reporting obligations by 25 per cent. She has also tasked Mario Draghi, former president of the European Central Bank, to prepare a report on the future of EU competitiveness, she announced.

“The EU will do whatever it takes to keep its competitive edge,” said von der Leyen.

CSRD under threat?

However, lawyers at law firm Frank Bold expressed concerns that the focus on competitiveness at any cost could impact sustainability pledges. In a press statement, the firm called on the commission not to disregard the political agreement reached in 2022 on the Corporate Sustainability Reporting Directive and insisted the SME relief package must not exempt any large companies from providing sustainability data on climate or workers.

“While Europe is witnessing the enormous costs of climate-related impacts, the commission proposes to cut back on its own framework that is intended to guide the transition of companies and investors to a more sustainable economy,” said Filip Gregor, head of responsible companies at Frank Bold. “This is pure electioneering bluster and takes away the compass for mid-sized companies to transition”. Brussels is getting ready for the 2024 European elections and many commentators have suggested von der Leyen is gearing up for a second term as commission president.

The main goal of the CSRD is standardisation, which will bring simplification and cost savings, said Frank Bold — “if the EU now introduces more and more carve-outs to the application of the standards, they will cease to be fit for purpose”.

Gregor told Sustainable Views he was concerned the commission could meet its plans to reduce administrative burdens by 25 per cent “by carving out a new category of ‘small mid cap’ companies from the definition of large undertakings and removing all ESG reporting obligations from them, including GHG emissions”.

Such an approach would mean “boldly telling tens of thousand of large companies that they absolutely don’t need to be worried about climate change transition, policy and market developments or extreme weather, or even as much as calculating their carbon footprint,” he commented.

Removing sustainability reporting demands also makes no sense from an economic point of view, added Gregor. “No matter how you count, the cost of ESG reporting is in hundredths of turnover. Looking at it from a cost/benefit perspective reveals a very different picture than the one portrayed by this political communication we hear.”

“The idea that a 500–people strong company can have a successful business in the next decade without measuring and managing ESG performance just does not match reality,” said Gregor. “It would just come back to them in the form of much greater costs, and significant risks to their business.”

Focus on tax

Meanwhile, Olivier Vardakoulias, finance and subsidies expert at CAN Europe, a non-profit, had called ahead of von der Leyen’s speech for more investment to allow the EU to deliver on the energy transition, potentially through “a wealth tax, a permanent excess profit tax, a financial transaction tax and a frequent flyer levy”.

“It is crucial to avoid tinkering around the edges with short-term fixes while losing sight of the big picture,” he said in a press statement. “Especially after the end of ‘Next Generation EU’ in 2026, the EU will need substantial new resources for closing the investment gap in climate action and the just transformation of our economy.”

A service from the Financial Times