Opinion in NRC: The Green Deal has been watered down, now companies must step up
Andrea Rusman, CSRD advisory lead at Impact Institute and Michel Scholte founder and director of Impact Institute and True Price wrote an opinion piece about CSRD and Omnibus for NRC Handelsblad. Read the original publication here (in Dutch).
AMSTERDAM – With the simplification of the European Green Deal, companies have fewer obligations. But the time to act is still now, write Andrea Rusman and Michel Scholte.
As part of the Green Deal, the European Union has rolled out a wide range of measures and sustainability laws in recent years. Two key laws are the reporting obligation (CSRD) and the duty of care along the value chain (CSDDD). To bring the laws more in line with each other and simplify the obligations, it was recently proposed to merge the regime into the so-called Omnibus Regulation.
With this regulation, the original proposals have been severely watered down, which seems to significantly reduce Europe’s sustainable ambition.
No plan
Whereas the CSRD applied to more than 50,000 companies, now that is 80 per cent less. The companies now exempted represent some 4 trillion euros in turnover. They do not now have to write a climate transition plan, for example. In the most conservative estimate, this means that 100 million tonnes of CO2 emissions are not subject to reduction plans. With a modest price tag of €200 per tonne of CO2, this means €20 billion in climate damage. By comparison, the European Commission expects €6 billion in burden reductions for companies thanks to the new legislation.
Besides the reporting obligation, the duty of care is also shrinking. Under the new law, companies now only have to be critical of their direct suppliers, while it often turns out that the biggest environmental and human rights issues are at the beginning of the chain. This means, for instance, that clothing brands only have to look at the last production step. It gives them a free pass to look away from textile production, where forced labour often occurs, or cotton production, where underpayment is the norm rather than an exception.
Moreover, it means that there will be no duty of care for 2 billion small farmers in the global South. Those farmers produce much of our tropical food, from rice and spices to coffee and cocoa, and often live in extreme poverty. They almost always supply their produce to a middleman who does not operate in the EU.
A European coffee brand is now not only allowed by the EU to look away if they see a farmer not earning a living wage or working in dangerous conditions, the company no longer has to investigate it at all.
Unhappy with easements
Many companies are balking at the relaxations. Not only because it delays making Europe and European chains more sustainable, but also because many of them had already invested heavily in regulations. The commission’s lack of clarity and late turn, punishes the forerunners and lowers confidence in the European government.
So how to move forward with making Europe more sustainable? Should companies celebrate when they are no longer required to report and ensure human rights in the value chain? After all, that lowers their administrative burden. No, instead, these volatile times call for an extra investment in sustainability: to get your ESG (environmental, social and governance) data in order and to invest in workable plans for decarbonisation, biodiversity restoration and human rights preservation.
Central to CSRD is the concept of ‘double materiality’. Causing ESG damage, is bad for the community, but when all is said and done, also bad for the company itself. The more you emit, the more you can lose if climate change gets really serious. And the worse you know the human rights situation in your supply chains, the more your reputation comes under pressure. It is precisely by investing in sustainability now that companies can be more profitable in the long run.
An extra mile
The legislation provides two suggestions for companies that want to go the extra mile. Companies can voluntarily follow (part of) the CSRD and the CSDDD. For instance, we would recommend everyone to have a proper analysis in order to identify the main impacts on the world and risks for your organisation. A climate transition plan is not a luxury, but a dire necessity. And even if the CSDDD does not require you to do it, you need to research your value chains before an NGO can unmask your business model.
Secondly, there have recently been (again voluntary) standards for SMEs, the VSME. These are remarkably clearly written and easy to apply. They quickly bring an SME to the core and help tell a distinctive story. Just because you don’t have to report doesn’t mean you can’t.
The Omnibus accident is a step backwards in making Europe more sustainable. There is legitimate frustration among the forerunners. But the new situation is also an opportunity. By voluntarily showing openness, forerunners may be able to distinguish themselves even better.
