A version of this article appeared in Tagesspiegel Background in November

Hardly has the ink dried when the EU is tearing apart its own rules on corporate environmental reporting. If Brussels gets its way, the EU’s Corporate Sustainability Reporting Directive, or CSRD, will become a shadow of its former self.

The scale and speed of this capitulation to U.S. and industry pressure, and its consequences, are frightening. A comparison with climate data makes this clear.

It worked for carbon, why not for pollution?

Climate reporting by business has developed over nearly three decades. The Global Reporting Initiative, founded in 1997, and the Kyoto Protocol of 2005 created incentives for companies to record their CO₂ emissions. Carbon data from tens of thousands of companies are now used by investors worldwide.

By contrast, data on pollution are fragmented and collected only irregularly and locally. In the EU, the U.S. and Japan, factories and mines are required to report releases of certain chemicals, but this is neither standardised nor comparable.

Climate reporting relies on one metric: carbon equivalents. Pollution, however, involves hundreds of thousands of substances, mostly unmeasured. Moreover, emissions from factories and supply chains give an incomplete picture. Many hazardous chemicals are contained in end products. Pollution of water and ecosystems often occurs only at the end of a product’s life after disposal.

The CSRD shone light into this darkness. It was meant to finally provide transparency about environmental and health risks, and give investors and lenders comparable data to direct capital into the green transition.

Moreover, EU’s chemicals legislation REACH focuses only on the EU market and EU-based factories. The CSRD has aimed to integrate the global dimension. Financial institutions, banks, and investors want to understand all of a company’s risks and opportunities. That is why, for example, BASF has disclosed emissions data from all its plants – including those in China, the U.S., and Malaysia – in its CSRD report.

The CSRD offers two further advantages. Companies must provide independent audits by external accountants. And misconduct can lead to fines and penalties – much clearer consequences than the lengthy procedures that follow REACH violations.

‘The CSRD shone light into this darkness. It was meant to provide transparency’

Sonja Haider

Numbers, not narratives

Since late 2022, numerous companies have been collecting the required data on chemicals. They have invested heavily and worked hard to prepare this new information. Last year they published their first CSRD reports. After all this effort – and given the clear benefits – it is a regulatory own goal now to turn back the clock.

Above all, investors need numbers instead of narratives. Only concrete, third-party-verified data on volumes, emissions, and the share of revenues from products containing hazardous substances enable objective assessments. Auditors could have helped optimise the CSRD. Best practices could have shown the way forward.

But the opposite is happening. Under the misleading slogan of “simplification”, the deregulation panic in Brussels is destroying established processes and bypassing the public consultations that usually improve EU regulations.

Worse is yet to come. The European Financial Reporting Advisory Group, or EFRAG, the private body advising the European Commission on corporate reporting, is proposing to remove all disclosures of financial impacts and to make the reporting of emissions and hazardous substances voluntary. This undermines every goal of the CSRD and all the efforts companies have already made.

The EU is tearing apart its own rules on corporate environmental reporting

Protests from the financial world

The reason is fundamental. Without detailed reporting, investors cannot see which companies take the transition seriously, reduce their risks, or operate within planetary boundaries. Particularly in the chemical industry – where I regularly speak with the world’s largest producers about their handling of hazardous substances – the CSRD is used as a strategic tool for internal management and credibility.

The gutting of the CSRD has met with widespread disapproval. Christine Lagarde, President of the European Central Bank (ECB), sharply criticised the proposed changes. She said they “limit the availability of corporate data and thereby weaken the ability to assess climate-related financial risks.” More than 250 European economists and major investor groups are calling for the same: the CSRD must apply – including to medium-sized enterprises.

If these requirements disappear, so does the information needed to identify frontrunners. This is the wrong path.

The dismantling of environmental regulation harms both companies and citizens. We do not need regression, but the will to use existing regulation intelligently – in favour of a clean environment, healthy people, and sustainable business.

Sonja Haider

Head of Sustainable Finance at ChemSec