A new proposed set of social, environmental and governance rules for EU businesses

Leticia S. Jarlicht
Student of International Relations at LSE

Άρθρο στο Μηνιαίο Ενημερωτικό Δελτίο ΣΕΒ – Ρυθμιστικό Περιβάλλον και Επιχειρήσεις –  31 Αυγούστου 2022

The European Commission is proposing new social, environmental and governance rules for businesses. Such reform aims to amplify transparency on sustainability impacts, risks, and opportunities of EU large companies while mandating the development and implementation of environmental, social, and governance (ESG) standards. This will follow by implementing Corporate Sustainability Due Diligence (CSDD) and Corporate Sustainability Reporting Directive (CSRD) directives. These are meant to work together as a framework for what due diligence obligations certain corporations will bear, and as a framework for how companies will be required to report on these obligations, consecutively. Under the proposed CSRD, EFRAG would develop draft standards (ESRS), using proper due process, public oversight, and transparency, and with the expertise of relevant stakeholders. This will set standards/prototypes that will spell out what a company has to report and how it has to manage the data collection, validation, selection, the presentation process.

While this is a broad summary, discussions are being held between EU Parliament representatives, Business Europe, and National Federations to agree on and finalize the drafting of the framework. However, whilst the EU Commission strongly argues that the proposed framework is suitable and will ensure that businesses address adverse environmental and human rights impacts of their actions, Business Europe has proposed certain improvements to avoid the risk of the new mechanism becoming a needlessly complex set of responsibilities and to help adopt a more clear terminology based on the current UN and OECD guidelines.

Indeed, although the EU Commission proposal’s goal to foster sustainable and responsible corporate behaviour and to anchor human rights and environmental considerations in EU companies is necessary, there is still room for better drafting and implementation. That is necessary to yield the result in the timeframe the Commission envisioned and avoid creating further complications when trying to collect data under EFRAG’s standards, as well as postponing significant advancements and results of the European sustainable finance agenda (EU Green Deal and the REPowerEU plan). As a 1st year International Relations student with some insight, I would argue that to avoid a possible stalemate, continuing discussions by parties are needed to ensure, in the end, a well-functioning and effective framework that creates a level playing field and effectively supports an efficient path towards sustainability.