Over the past five years, the EU has paved the way in developing sustainability reporting requirements for companies operating within its borders. Landmark legislation has been passed saying what needs to be measured and how it should be reported, so investors and regulators can assess the associated risks.
However, proposals put forward by the European Commission for a “simplification” omnibus jeopardise this framework. While there is certainly a need for streamlining the reporting process too much has been cut away and, as well as creating uncertainty, the omnibus in its current form undermines other EU initiatives such as the European Green Deal.
Economic actors need legal certainty today to make the necessary investments for the future, so we need to change the framework to support decarbonisation and sustainability.
The European Green Deal is a good and necessary concept that takes into account resource efficiency, decarbonisation and competitiveness as well as a just and inclusive transition. However, in practice the package came with many challenges and the European Commission’s proposals for its simplification omnibus threaten to undermine the green deal’s goals.
Improving reporting instead of weakening requirements
How could we keep these objectives but make them better?
We need to be guided by what the science says and instructs us to do. Our decisions should be founded on evidence-based and harmonised indicators, while our economic guidance – in the form of the European Semester, part of the EU’s economic governance framework – needs to include performance measures beyond GDP and the economy such as natural capital or the (until now) unquantified care economy. The reporting requirements should also be the same for both public and private actors, and life cycle assessments need to be based on a robust and transparent analysis.
Regulation can either speed this process, or it can support a type of pseudo-reporting and greenwashing. For example, looking at the proposed changes to the corporate sustainability due diligence directive (CSDDD), which guides sustainability analysis in large companies, the proposals include restricting the scope to tier 1 partners which supply directly to the reporting company, but omits indirect suppliers further down the value chain.
Take for example a clothes retail brand. Its own operations include offices and stores with staff and the environmental and social footprint can be very minimal, consisting of low-energy use and staff transport to work. If the brand buys their clothes from a wholesale operator, it will also have offices, staff and a bit of logistics from the ports to the stores – again with a relatively small impact. So all in all, under the revised CSDDD framework the clothing company gets a green star for sustainability.
What’s not included in this way of measuring are the resources and energy required to produce the raw materials and manufacture the clothes, as well as dealing with them as they are thrown away – in other words, it omits the true effects on climate, environment and people. Without a robust life cycle assessment from cradle to the grave, everything from the impacts of growing the clothing fibres to how quickly clothes end up in landfill or as incinerated waste is easily missed.
What the EU omnibus could have been
As part of the omnibus process, we could have improved implementation of the different sustainability regulations by creating a common reporting platform or indicators for metrics currently assessed differently under the various pieces of legislation, such as resource efficiency in terms of carbon dioxide emissions.
It is also important to use the same methods and units of measurement for all operators so the data is comparable. It should be like calculating returns on investment: all businesses calculate it in exactly the same way with exactly the same data, therefore the results are always easy to compare between companies.
During the last parliamentary term, we fought hard to make the true environment and social effects of large corporations visible and we shouldn’t lose sight of this. We get what we measure, so when we pay attention to lowering carbon emissions, mitigating the effects of climate change or enriching biodiversity, that is what we will get.
The current omnibus proposal does not do what it should which means the original problem – that the impact of companies on the climate and environment is not fully recognised – remains and in fact becomes worse. The massive reduction in scope brings us back to the use of a dozen different ESG reporting frameworks and leads to more red tape, not less.
We are not throwing the baby out with the bathwater. Instead, we are chucking away the baby but we’re still left with the dirty water in our sink.
Looking ahead to a fully circular economy
The long-term goal is that we should be carbon neutral by 2030 if we want to curb global warming, and by 2040 our carbon sinks – which draw down and store carbon from the atmosphere – should be greater than our emissions. So we need to set the bar at the right level: we need to raise our ambition and speed up the transition. Incremental adjustments are unable to achieve the change we need and, on top of that, we need room for flexibility in case science shows that we have to adjust our trajectory or speed up.
If we fail in this, we won’t have the time or money to try again.
Above all, the biggest possibilities lie in a circular economy. The brutal war on Ukraine exposed Europe’s dependence on imported energy and raw materials, so making use of those resources as efficient as possible is both critical and urgent. We need to produce the same level of economic output and human well-being with one tenth of our resources and emissions.
European business opportunities lie in not only making our products more sustainable and reusable, but also in designing out waste and developing new business models promoting sustainability as a service – the circular economy in action. The obvious low hanging fruits are to be found from combining our technological skills with special strengths in areas such as construction, textiles, energy and clean technologies.
Unlocking investments requires incentives and reporting
In order for our linear economy to become circular, we have to solve two macroeconomic challenges.
First, European investments are lagging behind and of the money we have, too much is locked up in fossil-based operations. Seventy percent of our assets are pursuing unsustainable targets, sunk into harmful or even dangerous industries and sectors.
Second, incentives are currently working to speed up climate change and biodiversity loss when we need to do exactly the opposite. With sustainable reporting requirements, companies are able to recognise where their assets are invested and what impacts on the climate and environment their investments are generating. With clear and harmonised reporting, investors are able to recognise which options are more sustainable.
That is why hundreds of investors representing trillions in assets are calling for the EU to preserve the level of ambition in its sustainable finance framework. Such regulation helps investors to manage risks and identify opportunities, leading funds and assets towards supporting the green transition.
The biggest challenges from anti-regulation and de-regulation are that they breed uncertainty in the long-term. Just as you wouldn’t avoid scheduling a cancer operation because you broke your arm, neither should you postpone climate action due to acute crises such as conflict or inflation.
Legislation has put seatbelts in our cars and taken DDT off our dinner plates. The European Green Deal could still be a driver of investment in climate and sustainable technologies and businesses, but the EU’s omnibus process must provide the robust framework to enable that.
Listen to the Sustainability Omnibus Podcast, a limited series exploring the complex nuances of the EU simplification agenda on sustainability reporting.
This page was last updated April 25, 2025
Written by
Sirpa Pietikäinen is a Finnish Member of the European parliament representing the European People’s Party since 2008. She was Finland’s minister of environment from 1991 to 1995, and a member of the Finnish parliament from 1983 to 2003.
