Why EU cuts to red tape could hamper environmental ambitions
Green tape
Some EU officials worry that a push to cut red tape could let companies off the hook regarding their efforts to reach the Paris climate goals.
New draft rules seen by the Financial Times would make reporting on climate impacts voluntary rather than mandatory for EU companies, writes Alice Hancock.
Context: this year, an update of the bloc’s corporate reporting standards came into force, increasing the number of companies covered by the rules. It sets out that businesses have to report to a set of standards, which will be laid out in further legislation this year.
According to the draft of that legislation, companies won’t have to disclose efforts to come in line with the Paris climate agreement unless the company deems them “material” to its activities.
A specialist advisory group, EFRAG, had advised making reporting climate impacts mandatory, while others, such as employment conditions, could be submitted according to an assessment of their importance done by the company itself.
But the European Commission seems to have disregarded that advice and wants to make all areas, including climate, subject to a “materiality assessment”.
The change has prompted disquiet among more environmentally-minded officials. They argue that it will be more difficult to track the effect of businesses’ activities on the climate. Finance institutions would also have a harder time keeping tabs on businesses they invest in for their own financial reporting.
It also means that companies can set their own terms when it comes to decarbonisation, one EU official said, as seen at the ExxonMobil annual meeting last week.
The move is part of Brussels’ wider effort to cut red tape, after commission president Ursula von der Leyen promised to reduce reporting requirements for businesses by a quarter.
A document circulated this week by Denmark and Estonia showed that there was support among member states for the anti-bureaucracy push.
But in an ironic twist, the changes mean the work for companies might not actually decrease. An executive at a major multinational firm said that while there might be less actual reporting, “it will still take the same amount of work for us because we need to do the assessment for all”.
The commission declined to comment on the change. It said that the standards “will be published for public consultation as soon as possible”.