The European Union has officially agreed to scale back its flagship sustainability laws. While businesses welcome the reduction in red tape, major investors are sounding the alarm.
EU officials finalized the changes on Tuesday. This decision follows months of intense pressure from corporate lobbyists and foreign governments.
However, asset managers warn of negative consequences. They argue that this deregulation creates “blind spots.” Consequently, it will be harder to identify companies that are genuinely transitioning to low-carbon operations.
Dismantling the Framework
The revisions target two critical pieces of legislation: the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD).
Previously, these laws required rigorous transparency regarding environmental impact. Under the new agreement, the scope is severely limited.
- CSRD Changes: The reporting threshold is significantly higher. Now, only companies with over 1,000 employees and €450 million in revenue must report. Furthermore, financial firms are entirely excluded.
- CSDDD Changes: This law now applies only to firms with 5,000 staff and €1.5 billion in net turnover. Most significantly, the obligation for companies to implement a net-zero emission plan has been dropped.
Investors Left in the Dark
For the investment community, less data equals more risk.
Carlota Garcia-Manas, head of climate transition at Royal London Asset Management, criticized the move. She described the scrapping of mandatory transition plans as a major blow.
“Without credible transition plans, Europe could lose comparability, visibility on progress and a potentially useful tool to access transition finance,” she said.
Eleanor Fraser-Smith of Victory Hill Capital Partners agreed. She argued that dilution does not solve complexity.
“Stepping back from requirements doesn’t make the system easier, it just makes it less coherent,” Fraser-Smith noted.
As a result, the burden shifts to asset managers. Hortense Bioy of Morningstar Sustainalytics warned that investors must now do more “detective work” to hold companies accountable.
Relief for Industry
In contrast, business groups cheered the decision. They viewed the original proposals as overly burdensome.
Markus J. Beyrer, Director General of BusinessEurope, stated that the EU is finally delivering on its pledge to reduce bureaucracy.
“Even with the improvements achieved … it will still be a substantial challenge for companies to comply with the new rules,” Beyrer added.
Political Pressure Points
The rollback did not happen in isolation. It follows warnings from international partners, including the United States and Qatar. These nations reportedly cautioned that strict rules could disrupt gas supplies to Europe.
Critics remain vocal about the ethical cost. Hans Stegeman, chief economist at Triodos Bank, lamented the outcome.
“Legislation meant to combat child labour, environmental pollution, and exploitation in supply chains is being hollowed out,” Stegeman said.
