More red tape for European companies

Politics - November 16, 2022

The ambiguous term “sustainability”, when applied to corporations, includes a wide variety of environmental items, so-called social rights, human rights and elements of governance, all of them mixed in a melting pot dear to many mainstream politicians that have never created nor managed a company.

On the matter, the European Union had already passed a regulation (Regulation (EU) No. 537/2014), plus three directives (Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU).

Last Thursday, the European Parliament has approved to amend all of these with a so-called Corporate Sustainability Reporting Directive (CSRD), in order to further expand non-financial reporting obligations on behalf of our enterprises.

An excuse to advance this proposal is to increase consistency in information provided by undertakings to markets, so that investors inter alia may have immediate access to it when allowing for financial decisions.

After the interinstitutional negotiations achieved with the Council of the European Union, this has unanimously agreed to update the current status of the EU legislation on the topic, less than ten years after having done so before.

Not only the amount of laws, but also their short duration, speak about their quality and demonstrate how European taxpayers have to suffer from the lack of contention of their representatives in Brussels.

In fact, this initiative stems from Mrs. Von der Leyen’s “Green Deal”, that is, her communication of 11 December 2019 where she committed to review the provisions concerning the non-financial reporting of Directive 2013/34/EU as an alleged means to create an economy that works for the people.

It also links European company obligations to the United Nations “Sustainable Development Goals” (SDGs), which in theory are voluntary.  But CSRD states that sustainability reporting standards should also take account of them as principles and framework of a “responsible business conduct, corporate social responsibility, and sustainable development”, whatever all that means.

As a lesser evil it can be said that CSRD impacts EU corporations over 250 employees and an annual turnover of at least €40 million, plus companies listed on regulated markets, and the subsidiaries of both.  Therefore, only listed SMEs are affected.

A common criticism to this type of political and economic approach is that it creates a favourable situation for non-EU undertakings.  To reduce such an economic suicide in the midterm, non-European companies generating a net turnover of €150 million in the EU and which have at least one subsidiary or branch in the EU are also included in the scope of the directive.

It is fair to say that the exclusion of most SMEs plus the inclusion of some non-European companies constitute two relevant factors that counterbalance the negative effects of this new piece of EU legislation.  And a reason for some conservatives to support it.

Moreover, the fact that subsidiaries can report in a consolidated manner with their parent company does further reduce their administrative burden.  Surely all of these factors have contributed to the unanimous support in the Council.

However, once more the trend we see is that freedom of enterprise suffers from Brussels bureaucrats.  The activity of ECR negotiators has been to reduce the impact on businesses and Member States, knowing that a majority of political groups, ranging from communists to Christian-democrats aligned within the European People’s Party, keep a consensus on making the Union a super-state.

And not by coincidence, the rapporteur for the file, Mr. Durand, a representative of the French party “RE” led by President Macron, has proclaimed during the plenary session that this was an extremely important example of “European sovereignty”.

On this occasion, most ECR parliamentary delegations voted with the majority for the sake of a “pragmatic result” based on the counterbalance elements mentioned above.  Some members of the Czech delegation abstained, while the Belgian, Dutch, Slovak, Spanish and Swedish group delegations opposed the deal.

Source of the picture:  AmCham EU