EU Set to Cut ESG Red Tape as France Adds to Mounting Pressure
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EU Set to Cut ESG Red Tape as France Adds to Mounting Pressure
Frances Schwartzkopff and Ania Nussbaum
6 min read
(Bloomberg) -- The European Union is facing mounting pressure to scale back its highly contested ESG reporting requirements, as France prepares to unveil a formal proposal seeking to limit the scope of the regulatory framework.
The French government is working on a set of recommendations intended to rein in the Corporate Sustainability Reporting Directive. The proposal will likely include limiting the number of companies in scope for the full requirements, according to a person familiar with the matter who asked not to be identified discussing private talks.
The goal should be rules that are manageable, but “not costly for companies,” Sophie Primas, a spokeswoman for the French government, said after a cabinet meeting on Wednesday.
“Today, the devil is in the detail. In fact, the implementation of this CSRD regulation is hell for companies. I believe that the European Union as a whole has realized that it has gone a little too far,” she said.
The development means the EU’s two biggest economies are now publicly pressuring the European Commission to make cuts to CSRD, after Germany’s government last month urged the bloc’s executive arm to scale back the directive. That’s as fresh data show Europe’s largest economy shrank for a second consecutive year in 2024, with many business leaders and lawmakers blaming regulations for a loss of competitiveness.
“There is a common diagnosis of the need to lighten the burden on businesses to make them commensurate with the challenges we face,” Robert Ophele, chair of the French Accounting Standards Authority and a former head of the country’s financial regulator, said by email. “Differences are more in the magnitude and timing of what should be done.”
A European retreat from its ESG (environmental, social and governance) ambitions coincides with a new political reality in the US, where President Donald Trump has committed to unwind Biden-era climate policies, boost fossil-fuel production and impose tariffs on goods from countries traditionally seen as allies.
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The European Commission may choose to back significant limits in the scope of CSRD, according to people familiar with the matter who asked not to be identified discussing private deliberations. Talks are ongoing and the commission continues to take new information into account, the people said.
A spokesperson for the commission declined to comment on details of the discussions currently underway. The EU’s executive arm is assessing various files for inclusion in the so-called omnibus proposal, the spokesperson said by email, referring to a legislative process that combines more than one proposal.
Talks are expected to continue until Feb. 26, when the commission is scheduled to discuss and possibly adopt the omnibus legislation, the commission spokesperson said. The timeline may be subject to change, the person said.
There’s still support inside the EU for the bloc’s broad sustainability agenda. In a letter to EU policymakers earlier this month, some of France’s largest companies, including Amundi SA and Electricite de France SA, proposed some changes to CSRD while also noting that the requirements remain “essential tools to ensure European companies are prepared for ESG risks and can thrive in a competitive global economy.”
In the existing plan, CSRD would affect as many as 50,000 companies doing business in the European Union. Companies with at least 250 employees and annual revenue of €50 million ($52 million) must report hundreds of ESG data points, ranging from the gender diversity of their boards to the biodiversity risks posed by their operations. The first batch of companies started collecting such data last year, with public disclosures due to be published in 2024 annual reports.
The French government’s proposal is likely to echo recommendations by Ophele, according to the person familiar with the matter. In his capacity as chair of the French Accounting Standards Authority, Ophele has suggested that the EU maintain most of the current deadlines for compliance with CSRD, but make cuts to requirements for companies with fewer than 1,000 employees, according to documents seen by Bloomberg.
Ophele’s proposal also suggests that companies that have already devoted considerable resources to complying with CSRD not be wrongfooted by sudden changes in reporting deadlines.
“It’s not a question of abandoning the objective,” Primas said. “It’s a question of making it intelligible,” also “for the general public, and as inexpensive as possible for companies.”
Though widely supported in 2022 when it was adopted, CSRD is now drawing criticism from policymakers and businesses alike as deadlines loom to publish the first reports. A separate set of EU-focused ESG rules, called the Corporate Sustainability Due Diligence Directive, has already seen its scope limited so that it only affects companies with at least 1,000 employees and annual revenue of at least €450 million.
Matching CSDDD, which introduces new legal risks for companies that fail to address human rights and environmental breaches in their supply chains, may lower the number of companies obligated to report under existing CSRD rules to as few as 7,000.
The European People’s Party, a coalition of center-right groups in the European Parliament whose members include European Commission President Ursula von der Leyen, is calling for significant reductions in the EU’s ESG agenda. In a statement earlier this month, the EPP said the “trickle down effects” from CSRD and CSDDD to smaller companies are “excessive and burdensome,” and threaten the bloc’s economy.
Polish Prime Minister Donald Tusk, whose country currently holds the rotating EU presidency, said on Wednesday that the bloc needs to review its green regulations. The comments echoed those of EU’s economy commissioner, Valdis Dombrovskis, who said at a press conference on Tuesday that ministers meeting in Brussels called for simplification of regulatory burdens as “essential elements for improving competitiveness.”
CSRD also has been criticized from outside the EU, with lawmakers in the US contending that its scope represents regulatory overreach. And last year, former European Central Bank President Mario Draghi singled out regulations as a key reason why Europe is falling behind the US in competitiveness. Von der Leyen has responded by pledging to cut administrative reporting burdens by as much as 35%.
The discussions are likely to hold up development of ESG impact-only requirements for non-EU companies without listings in the bloc, with debate centered on whether those should apply globally. They are now being set for firms that first report in 2029.
--With assistance from John Ainger, William Horobin, Kevin Whitelaw and Jorge Valero.
(Adds details of likely proposal in second paragraph, and comments from French companies supporting CSRD.)
