Is Europe about to lose its edge on ESG?

Our Frankly Speaking conference offered a space this January for an honest and constructive discussion on competitiveness and sustainability, including key options for meaningful simplification in the announced Omnibus. 

As Filip Gregor (Head of the Responsible Companies section at Frank Bold) highlighted in his introduction, we are living in a much more problematic geopolitical context than in 2019:

• Changes in the US administration
• Unscrupulous China
• Russia’s aggression against Ukraine and Europe

In this environment, Europe’s safety and autonomy is at stake. The EU’s competitiveness strategy must:

• Maximise energy and resource efficiency 
• Harness ESG data at scale to drive the efficiency, innovation and digital economy growth
• Increase capital for sustainable companies in Europe
• Assert level playing field by requiring respect the same standards from non-European companies
• Make renewable energy and sustainable industry projects easier to realise

MEP Lara Wolters in her powerful opening remarks stressed that in the face of these geopolitical challenges, European leaders must focus on delivering prosperity while avoiding a race to the bottom in social and environmental standards. The CSRD and CSDDD are important tools to ensure the competitiveness and sustainability of businesses. 

While implementation is likely to pose some challenges which should be addressed, backtracking would be unhelpful, penalise companies that have proactively prepared as well as damage the credibility of the EU.

Speakers at the conference emphasized critical priorities to EU leaders for future work on sustainability policy:

• Eric de Deckere (Cefic) emphasized the need for a mindset shift among both businesses and policymakers, ensuring that sustainability remains a central focus. He added that industrial decarbonisation is non-negotiable as well as the need to secure Europe's path to strategic independence, emphasising the role of circularity
• Diane Mievis (CISCO) underscored the importance of sustained investment in green and digital technologies, stressing that such commitments will be essential moving forward. Any adjustments should be targeted and must consider the best way to integrate and support small suppliers.
• Heather Grabbe (Bruegel, UCL) called for a fundamental change in timescales. She urged decision-makers to look beyond election cycles and adopt a long-term perspective toward 2050 in order to address systemic risks in the European economy, and provide a competitive edge for businesses to improve efficiency on resource and energy use.

• Iva Prošková (Severotisk) emphasized that well-prepared, stable rules allow companies to plan effectively. Practical guidance and support to understand connection among EU legislation would help businesses fulfil obligations and use opportunities.
• Niels Strange Peulicke-Andersen (Oersted) welcomed standardization as a simplification tool but stressed the need for the “best efforts” principle to be understood by all stakeholders, including auditors, to prevent overcompliance.

• Kristian Koktvedgaard (Confederation of Danish Companies) called for a bold, long-term vision, and robust guidance. He added that well-thought modifications are needed to ensure legislation is successfully implemented, especially for the smaller companies applying requirements for the first time.

Sustainability is a competitive advantage and a growth opportunity as pointed out by Mario Draghi. In the Digital Age, sustainability and ESG data are key for long-term success. They also represent a rare chance for the EU's digital economy.

Raising thresholds to exclude tens of thousands of EU companies from the ESG framework won’t improve competitiveness.

For businesses to harness the sustainability advantage, they need a legal framework and standards for sustainability reporting, legal certainty, clear guidance and less emphasis on compliance.

To make CSRD implementation easier, companies would most benefit from a gradual timeline for implementation and audit, and review of the EU reporting standards in the light of first reporting experience of very large listed companies.