The European Union (EU) is a big fan of ESG. AND rules. The Corporate Sustainability Reporting Directive (CSRD) requires companies of a certain size and/or turnover to report how socially responsible they are. By 2026, the first private companies would already have to report on 2025. The EU measures met with much resistance, as they imposed - according to critics - yet another administrative burden.
"ESG," short for "Environmental, Social & Governance," is a framework that can be used to test whether a decision made by a company or a business in general is socially responsible. Not just environmentally, but also socially.
The European Union (EU) is a big fan of ESG. AND rules. The Corporate Sustainability Reporting Directive (CSRD) requires companies of a certain size and/or turnover to report how socially responsible they are. By 2026, the first private companies would already have to report on 2025. The EU measures met with much resistance, as they imposed - according to critics - yet another administrative burden.
The competitiveness of the EU is under pressure. According to many companies, the many and extensive regulations are at the root of this. While in the US a trend of deregulation has started, in the EU more and more regulations are added every year. Mario Draghi's recent report stated that the EU can only remain competitive in the future if it deregulates. Companies had realized this before, but now so has the EU itself.
The European Commission has therefore recently proposed a whole series of simplification, the so-called "Omnibus simplification packages." One of the issues being addressed is ESG reporting requirements.
The European Commission's new proposals will change the CSRD in three crucial ways.
First, the scope would be drastically reduced. Only companies meeting the following criteria will be required to report:
About 80% of companies within the current scope will no longer be required to report under ESG.
Second, the reporting requirement would be delayed by two years. This means the first companies will not have to report for 2027 until 2028 for the first time.
Lastly, the content to be reported on will also be drastically reduced and simplified. Whereas until now, the intent was to have employers report on a miserable list of criteria, it would now be narrowed down to a few, more general criteria.
No way around it. ESG is and remains a good framework for assessing how socially responsible a company is. Although the CSRD goes a bit far (so far) in its administrative obligations, it does encourage companies to become more sustainable throughout their value chain.
A better ESG score - to the extent that such a thing can be expressed in a score - can give a (slight) advantage over the competition. And also vice versa, companies with a low ESG score are less likely to be picked up in public tenders, among other things.
These are already at least some of the reasons to report on ESG, even if you would no longer fall under the scope of the CSRD.
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