Editor’s note: bad for business

The latest edition of our Sustainable Views newsletter

Dear reader,

Those in favour of reducing the scope of the EU Corporate Sustainability Reporting Directive often insist the rules are too onerous. But business experts and lawyers I spoke to underline how the “uncertainty” of the process is likely to undermine investment in the EU, while sustainability-minded investors warn the omnibus could lead to misaligned investor and company demands, with very real consequences for delivery of the EU’s Clean Industrial Deal. 

These are some of the findings in my latest piece on the omnibus proposal. I also heard concerns about the removal of small and medium-sized enterprises from the main scope of the CSRD and what this means for competitiveness and data comparability. 

The uncertainty created by the process “is killing everything”, We Mean Business Coalition director of net zero finance Jane Thostrup Jagd tells me. “Most companies and capital providers will hold their horses. Little capital may flow towards sustainability in the next couple of years as no one knows what is going to happen.”

Sidley Austin partner Nicolas Lockhart agrees the omnibus process is causing “considerable uncertainty” and questions the extra compliance time it supposedly grants companies. “This is not yet truly useful time,” given the picture will remain uncertain until the final package is over the line and the revised European Sustainability Reporting Standards are through, he tells me. “Optimistically, this will happen by the middle of 2026. At that point it is only six months until the financial year starts on which companies have to report.”

Companies are “effectively being asked to waste time while the legislator sorts out a problem of its own creation”, Lockhart adds.

Meanwhile, Degroof Petercam chief sustainable investment officer Ophélie Mortier would also like to see a “stop-the-clock” approach for the investor side. “If SMEs don’t disclose and sustainability regulations don’t change for investors, the objective of supporting the real economy might be compromised,” she says. 

Take a read and let me know what you think. A draft agenda published this week shows the vote to activate the stop-the-clock procedure in the European parliament will take place on April 1.

Protect USA: between a rock and a hard place 

Meanwhile, Elizabeth examines what the “Protect USA Act” introduced by Republican Tennessee Senator Bill Hagerty on Wednesday could mean for the EU’s Corporate Sustainability Due Diligence Directive. According to one estimate, around 315 US-headquartered companies will be directly subject to the CSDDD, with others impacted indirectly. The bill aims at “shielding US companies from the EU’s harmful extraterritorial regulations”. The CSDDD has been a target for US lawmakers since Donald Trump came to power last November.

“I don’t envy businesses,” says Tess de Risi, senior adviser at modern slavery-focused association the Mekong Club. “Understanding how to behave is extremely difficult because nothing is predictable and the rules are changing so fast. This act forces companies to choose which regulation to follow, and be fined by either country or region as a result. That is not good for business.”

James Ford, a business and human rights lawyer at Mayer Brown in London, tells Elizabeth the law puts companies “between a rock and a hard place”, where complying with the law in one jurisdiction could put companies in breach of the law in another.

Mixed response to UK DEI plans

We also bring you a piece today that originally featured in our sister publication, The Banker, on how the UK’s financial regulator is facing mixed reactions from supporters of diversity, equity and inclusion initiatives in response to plans to abandon the introduction of new DEI rules. Some suggest the move could see companies deprioritise efforts in this area. 

And, as every Friday, we have our weekly sustainability news and views round-up, and the most-read stories of the past seven days. 

Have a good weekend,

Philippa

Philippa Nuttall is the editor of Sustainable Views 

This week’s top content

Financial institutions can halt commodity-driven deforestation

How the EU ‘omnibus’ could affect due diligence laws in France and Germany

Trump watch: president moves to dismantle key environmental law

Companies are leaving industry groups that oppose climate policies