The European Union is backtracking on sustainability reporting and due diligence. Sustainable finance is at risk, and expert Andreas Rasche does not hide his concern. “It is also up to corporate leaders to ensure that organizations understand the need for regulation.” These months mark a sort of “identity crisis” for corporate sustainability: on some fronts, progress is evident, while on others there have been major setbacks and reversals. So much so that they risk undermining even the CSRD directive on sustainability reporting and the CSDDD directive on due diligence.
Andreas Rasche is a close observer of sustainable finance and expresses deep concern about this current phase, especially after the Omnibus package, which called into question much of what had been achieved so far by the European Union—drastically reducing the number of companies subject to Brussels’ new sustainability reporting regulations.
A Professor of Business in Society at Copenhagen Business School, where he also directs the university’s Centre for Sustainability, Andreas Rasche focuses on sustainable strategies, non-financial reporting, and the transformation of business toward environmental and social responsibility. He is strongly convinced that sustainable finance is one of the most powerful tools to drive the ecological transition, because transparency and the quality of ESG data have the power to guide investment decisions. What he consistently emphasizes – and what also emerged in his interview with EconomiaCircolare.com – is that instruments like the CSRD and the EU taxonomy are not mere bureaucratic requirements, but levers for more conscious corporate management.
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What is the purpose of sustainability reporting, and why is it important in the ecological transition?
Sustainability reporting is all about collecting and analysing sustainability data. This is important for transparency reasons and hence accountability, but it is also vital for investors who use this data to make investment decisions. In the end, sustainability reporting is also simply about better management. For instance, the CSRD is not just a reporting framework; it is a framework to make better decisions in a company which acknowledges that firms face new risks and opportunities. If you do not measure your CO2 emissions, you can also not manage them.
Why has there been such cross-party opposition to the CSRD? What is your opinion on the arguments used to justify it? Are the burdens on businesses really excessive?
Well, the opposition against the CSRD mostly comes from the very far right parties, who basically just want to scrap the entire law, and also the conservatives, who want to modify the legislation in significant ways. The presented arguments are rather thin, if you ask me. It is true that the CSRD is a complex framework, and I definitely think that it can and should be simplified. But a lot of this simplification could have happened on a technical level, for instance by deleting data points and aligning definitions. The Omnibus proposal, however, goes much further than this as it simply deletes the reporting obligation for 80% of companies. But this does not simplify anything – it just means that companies do not have to report any longer.
Is there a risk – beyond halting an important process already underway – that the EU might achieve the opposite effect and that the economic damage to businesses will now be greater? Investors don’t seem pleased with the backtracking. Indeed, investor reactions are very mixed. The European Central Bank has warned that we will see significant data gaps and that it will be very hard to measure climate transition risks. Other investor organizations, such as the Principles for Responsible Investment, have also called for only making moderate changes. And, yes, the EU is likely to create economic damage, at least in the short term. Many businesses had already invested in CSRD implementation and now suddenly have to learn that the reporting requirements are delayed and possibly even completely deleted.
Are there, on the other hand, any EU regulations currently being implemented – such as the Ecodesign Regulation – that offer hope for the transition process? Yes, the EU is still pushing some other sustainability regulations such as the Ecodesign Regulation or the Green Claims Directive. Many businesses that I talk to are confused and have problems understanding these mixed signals, as the European Commission did not explain very well why it supports some regulations but not others. It leaves people with the taste that “simplification” is mostly a political agenda which is rolled out to show voters that something is done against bureaucracy. How much of this will really make European companies more competitive is at least questionable. Companies’ competitiveness depends on many factors, and compliance costs are just a small part of a much larger puzzle. What matters more is access to skilled labor, innovation and a really good infrastructure.
Conversely, is there a risk that the EU’s backtracking could extend to other areas related to sustainability and the environment? If so, in what direction? Yes, I think there is a risk that the backtracking will leave its marks also in other areas. For instance, 11 Member States just demanded further “simplifications” of the EU Deforestation Regulation, indlucing a further delay of the regulation. Many expected such chain effects, as those politicians who wanted to water down the EU’s sustainability regulations and couldn’t do it during the last parlamentiary term now see an opportunity. We will likely also see that the EU’s climate goals will be adjusted according to “pragmatic considerations”.
Do you think the overlap between certain EU regulations (taxonomy, CSRD, CSDDD) may have confused or scared businesses? The direct overlap was limited. I think what rather confused companies were the complexity of the regulations and the inconsistency of definitions between the different legal documents. But we should also not forget one thing. We are judging based on first-year implementation experiences for the CSRD, while no implementation experiences exist for the CSDDD. So, the confusion around CSRD was in a sense to be expected. We had also seen it around GDPR. It is naïve to believe that first-year implementation of new regulations will run smoothy. So, it is in a sense normal that things will not always go right the first time. Businesses first need to establish routines and this takes time. Once firms have more experiences and actors around them (e.g. auditors) have also gathered more experience, regulations are less confusing.
In your view, how widespread is greenwashing among the companies that would have been subject to EU transparency rules? Reporting rules as such can make greenwashing harder as they force companies to make public claims around their sustainability performance. However, what also matters for greenwashing are the regulations that aim to regulate which green claims companies can make, such as the new Green Claims Directive. These regulations can be useful in fighting greenwashing. For instance, greenwashing statistics by RepRisk for 2023-24 show a decreased level of greenwashing in Europe, and this can to some extent be attributed to companies knowing that regulation is on the way.
Do you believe there are other ways to achieve transparency besides regulatory intervention from Brussels? What should businesses do?
Transparency is not just an outcome of regulation. In the end, businesses can do a lot to help achieve transparency, mostly engaging with relevant stakeholders and providing communication channels for stakeholders to raise concerns.
In your opinion, what is the role of initiatives like the UN Global Compact or the UN Guiding Principles on Business and Human Rights in ensuring that multinational companies take real responsibility for their actions?
These frameworks and initiatives remain as important as they were 10 years ago. They define principles that act as a moral compass for businesses and hence they define aspirational standards. We cannot just rely on legal regulation, as there will always be areas that these regulations do not fully capture. What is needed is a “smart mix” of voluntary frameworks and legal regulation, and businesses need to engage with both. Otherwise, sustainability becomes a compliance task, but compliance as such is always reactive and does not inspire long-term value creation. So, in the end, it is also up to business leaders to make sure that the organization understands how voluntary and legal regulations both matter.
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