EU agrees deal on company disclosures to combat greenwashing

"Greenwashing is over," said Bruno Le Maire, the French economy minister who negotiated the deal on behalf of the 27 EU member states. [Copyright: European Union]

The European Union has reached a deal on corporate sustainability reporting requirements for large companies from 2024, the French EU Presidency announced on Tuesday (21 June).

Regulators have grown more worried about companies engaging in greenwashing, or making exaggerated climate-friendly claims to attract investor cash.

Members of the European Parliament and EU governments struck a provisional agreement on new reporting rules for large companies, said Bruno Le Maire, France’s economy minister who represented the EU’s 27 member states in the talks.

“This agreement is excellent news for all European consumers. They will now be better informed about the impact of business on human rights and the environment,” Le Maire said in a statement.

“Greenwashing is over,” he added, saying the agreement means more transparency for citizens, consumers and investors.

The Parliament’s legal affairs committee, which took part in the negotiation, said the new rulebook “aims to end greenwashing and lay the groundwork for sustainability reporting standards at the (the) global level.”

Listed or unlisted companies with over 250 staff and turnover of €40 million will have to disclose environmental, social and governance (ESG) risks and opportunities, and the impact of their activities on the environment and people.

Some smaller listed companies will be subject to a lighter set of reporting standards, which they can opt out of until 2028, the committee said.

“From now on, having a clean human rights record will be just as important as having a clean balance sheet,” said Pascal Durand, who led negotiations for Parliament.

Disclosures must be externally audited, Durand said, adding that the rules make room for new players to offer this service, and “not just leave it in the hands of… the Big Four,” a reference to EY, KPMG, Deloitte and PwC which dominate financial auditing.

The rules are part of a package which includes a “taxonomy” of what constitutes a green investment, and ESG disclosures for asset managers to help transition to a climate-neutral economy.

A formal vote by EU states and parliament is needed to ratify Tuesday’s deal.

The EU is set to become front-runner in setting global sustainability reporting standards, the Parliament committee said.

The US Securities & Exchange Commission has also proposed climate-related disclosures for companies, and the new International Sustainability Standards Board has proposed disclosure rules which mainly focus on climate.

But unlike the EU, neither require disclosures on a company’s impact on the environment.

The European People’s Party (EPP), the centre-right political family which dominates the European Parliament, expressed satisfaction with the deal.

“We managed to avoid heavy red tape for European companies”, said Daniel Buda MEP, who negotiated the file on behalf of the EPP Group.

The agreement foresees that sustainability and financial reports must not be audited separately. “We have pushed for this from the very beginning. A common audit will save our European businesses a lot of money. In these difficult times caused by the pandemic, the energy crisis and the war in Ukraine, we mustn’t burden them further,” Buda said in a statement.

The CSRD will replace the current Non-Financial Reporting Directive (NFRD).

An accelerator for a new model of capitalism

The proposed revision of EU rules on non-financial reporting is a further step in the evolution of our business model and investment practices, write a group of leading European business bosses.

[Editing and additional reporting by Frédéric Simon]

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