ESG is not dead, even though the EU intends to ease reporting obligations

The Omnibus package is the Commission’s proposal to simplify the regulation on sustainability and investment. The proposal is the first of three Omnibus packages prepared by the Commission. The Clean Industrial Deal, on the other hand, is a package that focuses on supporting clean industry. Through it, the EU intends to mobilise more than €100 billion to promote clean production produced in the EU. For example, a framework for state subsidies for clean industries is being planned, and the European Investment Bank is also launching new financial instruments. The aim is also to encourage the circular economy by setting new goals and incentives for it.

The aim of these two packages, which were published at the same time, is basically to improve the EU’s global competitiveness on a quickly but without compromising Europe’s pioneering role in climate and environmental goals. Instead of the green transition, we are now talking about clean industry.

After last week’s news, many have thought that corporate responsibility and sustainability may be taking a big step backwards. Some are talking about the death of ESG both in the United States and globally. After all, the Trump administration has taken an openly hostile attitude towards sustainability. Obvious examples include the withdrawal of the United States from the Paris Climate Agreement and the dismantling of the DEI agenda in companies and other organizations. At the same time, however, also opposite winds are blowing in the United States: many states in the United States will continue to rely heavily on the green transition.

It is true that these new winds in the EU’s would weaken sustainability in some ways. Although reporting cannot be the primary driver of corporate responsibility and sustainability, the Sustainability Reporting Directive (CSRD), for example, has given companies a boost in the strategic development of sustainability. If the mandatory reporting is reduced, there is a risk that the well-started development in combining financial and sustainability data and its strategic use in the management of companies will slow down.

Restricting the binding nature of the Corporate Sustainability Due Diligence Directive (CSDDD) to only apply to companies’ closest partners would be a step backwards. Many companies are already engaged in sustainability work covering the entire value chain, and this should continue to be encouraged as a long-term goal – this is the only way for companies to ensure their competitiveness and profitability in the future as well, and to achieve genuinely effective changes in both the realisation of human rights and the mitigation of climate change.

Over the past couple of years, we have journeyed alongside numerous companies in preparing for sustainability regulation and seen how big the change has been at its best. For example, double materiality analyses, when most successful, bring management, environmental professionals and business managers to the same table for the first time. This helps companies to think about what responsibility genuinely means in terms of business risks and opportunities. The responsibility for sustainability is now shared by an increasing number of stakeholders within companies.

At the same time, we can also say that it is good to include sensible easing of the regulation. Especially small and medium-sized companies must be left with the resources to develop genuinely sustainable business.

The EU’s actions regarding regulatory changes are now regrettably erratic for companies and create more uncertainty in an already challenging operating environment. However, if one thing is clear, it is that we still cannot afford to compromise on the development of sustainable business. The planetary boundaries are as close as ever, becoming ever closer. Stakeholders, such as financiers, investors, employees, and customers, also continue to have high expectations of companies.

The sustainable companies of the future will continue on the path of ambitious sustainable business, communicating and reporting on it diligently, inspiringly, and with high quality. For example, voluntary sustainability reporting standards (VSME) are already ready to be utilized, serving small and medium-sized enterprises in particular. With VSME reporting, SMEs are able to respond to the reporting obligations of large companies and the requirements of investors and other stakeholders in a uniform and comprehensive manner.

Although the operating environment of corporate responsibility and sustainability, as well as the tools and frameworks, are changing, it is worth keeping your eyes firmly on the long-term horizon. On this journey, we at Miltton are ready to help and journey alongside you.