Not all companies are happy with the relaxation of green European rules

At the very bottom of a 15-page letter from the European Round Table for Industry to the European Commission earlier this month were two short statements. Food companies Nestlé and Unilever and cosmetics company l'Oréal distanced themselves from many of the objections their fellow multinationals had raised in the preceding pages to the newly introduced European sustainability legislation.

This is very rare in joint statements from this European Round Table, whose members include large European companies such as TotalEnergies, Shell, BMW, Nokia and Dutch companies such as Heineken, ASML and Philips. In their letter, the large multinationals opposed parts of three European regulations resulting from the Green Deal: a directive on sustainability reporting, one on corporate social responsibility and one on green taxonomy, which stipulates which investments may be considered sustainable and which may not. Under the previous European Commission chaired by Ursula von der Leyen (2019-2024), these rules were adopted by the European Parliament after a long preparation period with much lobbying and negotiations.

The new Commission wants to merge these regulations into one so-called Omnibus regulation. With the motivation: simplifying the rules. That should increase the competitiveness of European companies.

Right-wing parties averse

In recent weeks, many companies have seen opportunities to use their lobby organisations to pressure the Commission to relax the rules, supported by governments in countries such as Germany and France. In addition, this Commission also has to deal with a new European Parliament, dominated by right-wing parties that have already shown an aversion to strict sustainability rules. This weekend, proposals circulating within the Commission were leaked, indicating that the scope of the regulations will be reduced.

Not all companies are happy with far-reaching adjustments. "We shouldn't throw the baby out with the bathwater," says Bart Vandewaetere of food giant Nestlé (which has brands such as San Pellegrino, Maggi, KitKat, Nuts, Nescafé and Nespresso). The communications director of Nestlé Europe points out that his company has been conducting voluntary research into the environmental impact and human rights issues in the chain of its products for more than ten years. "We have developed action plans for this, because we now know which issues we have an impact on and which pose a threat to our business. We have been reporting on this ourselves for years. European regulations ensure that more companies will have to do this. This creates a level playing field and we welcome that."

Unilever states in a statement sent to NRC that it – like Nestlé – fears that the level playing field will disappear if the legislation is amended. According to Unilever, this could also lead to "legal uncertainty and a lack of urgently needed planning certainty".

Relaxation

Nestlé and other companies that consider themselves pioneers with their sustainability policy now fear a major adjustment of three guidelines. According to the CSRD (Corporate Sustainability Reporting Directive), large companies (more than 1,000 employees, turnover above 450 million euros) must report annually on their climate, sustainability and social policy from this year and smaller listed companies from next year. The first reports according to this new standard will be published in the coming weeks. They quickly count 80 to 100 pages, the CSRD report from Nestlé that was published two weeks ago even almost 200 pages.

"Of course, this exercise also shows us that the rules could be simplified," says Vandewaetere. "But you don't have to change the basic legislation for that. There is mainly an agenda behind it to block some of those laws."

Leaked proposals show that the Commission wants to apply the CSRD only to large companies that have had to comply with the new reporting directive since this year. The obligation would be scrapped for smaller companies.

The CSDDD (Corporate Sustainability Due Diligence Directive, also known as the anti-look-the-other-way law) obliges companies to undertake corporate social responsibility by investigating human rights, working conditions and the impact on climate and nature throughout their entire chain. They must detect and tackle abuses. This obligation would apply to large and small companies from 2027.

According to the leaked proposals, this obligation would now be limited to companies with more than 500 employees. The investigation would only have to extend to the direct suppliers of companies, but not further down the chain. And it would only have to be carried out once every five years, which is still annually under the current scheme.

What changes the Commission wants to make to the green taxonomy have not yet been leaked. The European Commission will decide on the Omnibus law on Wednesday.

Cocoa

The fear of a serious relaxation and delay of the green legislation is great among companies such as Nestlé, Unilever, Signify and Primark. These companies have already invested heavily in implementing the new regulations. In various partnerships, they sent letters to the European Commission , in which they urged to adhere to the policy that has been set.

“We have a strong need for predictability,” says Mario Giordano, head of Public Affairs at Signify, the former lighting division of Philips. “We have done our homework, made investments, made short-term and long-term plans and got the job done. If some overlap is reduced and some rules are simplified, we are not against that. But we fear that Pandora’s box will be opened again and negotiations will be reopened. That would make it unpredictable, and that is bad for business.”

His colleague Maurice Loosschilder, head of sustainability at Signify, emphasizes that the CSRD report that is being released this week fits seamlessly into the company's 'climate transition plan'. "That plan was not motivated by the regulation that was coming our way, but by our goal to be net zero by 2040. By reporting according to CSRD, we can show transparently how we are making progress. With all the steps we have already taken in recent years, complying with CSRD was not that complicated. That can be more complex for other companies and the investments can then be higher. Especially if they do not have a sustainability strategy that is as well developed."

'Very dangerous precedent'

It would set a “very dangerous precedent” if these discussions on all the regulations already adopted by the European Parliament were reopened, says Tsvetelina Kuzmanova of the Cambridge Institute for Sustainable Leadership, a think tank that works closely with companies that see themselves as pioneers, such as Signify, Ikea and Hennes & Mauritz. “The strange thing is that few companies in our network of ‘Corporate Leaders’ have been invited to the consultations that the Commission has held in recent weeks,” she says. “It is framed as if it is about competitiveness, but that is not what it is. There is a request for delay, but delay does not help companies at all if they have been preparing for years.”

Delays in regulations are also a major concern for Vandewaetere of Nestlé: "It will then cost us a great deal of effort to actually improve conditions for farmers, for example. We know from all the data collected that 60 to 70 percent of the emissions we cause come from agriculture and the agricultural products we use. We give farmers premiums to reduce their emissions. But if a farmer can just as easily go with his products to a competitor of ours who does not set these requirements for his emissions, then that is much easier for him. The more companies set the same requirements, the greater the chance that farmers will change their production methods."

Nestlé, along with almost all of its major competitors in the chocolate industry, sent a letter to the Commission . It was also signed by American companies such as Mondelez (with brands such as Milka, Cote d'Or and Toblerone) and Mars Wrigley. "A few years ago, we advocated for this legislation together with a number of NGOs such as the Rainforest Alliance," says Vandewaetere. "So it makes sense that we don't want to see it dismantled again now."

Tony Chocolonely is also one of the signatories, although it does not have to comply with the new regulations. The young Dutch company makes it a point of honour to prove that a smaller company can also comply with the regulations. "Of course we have a big head start on other companies, because it has been in our DNA since our foundation to conduct research into our production chain," says Belinda Borck. "Our recently published sustainability report is already largely in line with the CSRD directive and we want to show that it is possible to run a profitable business even if we fully comply with CSDDD," she says. "There should be no distinction between large and small companies, it should simply be a basic necessity to comply with these rules. Things are not going that well in the world. We see deforestation increasing, the objectives of the Paris Agreement are not being met and we see deterioration in working conditions."

Accountants' experiences

For small companies, the regulations may indeed be too detailed, is the conclusion of accountants who are finalizing the approval of sustainability reports according to the CSRD guidelines. Six large accounting firms (Deloitte, EY, KPMG, PwC, BDO and Grant Thornton) also sent a letter this month, in which they urged simpler standards, especially for smaller companies.

“We are now finalizing the CSRD reports of many large companies, which will be published in the coming weeks. We see that companies have to meet a great many points and collect a huge amount of data. It is even more detailed than we initially realized,” says Mark Vaessen, head of sustainability reporting at KPMG. “The really large companies can still handle that, but smaller and also medium-sized companies lack the manpower for that and then have to make significant investments,” he says.

According to KPMG, it would be wise to only exclude small companies, but not medium-sized companies. However, according to the accountants, it would be good to limit the number of standards that these companies have to comply with. "You could also introduce the CSRD for those medium-sized companies in more phases, so that more can be learned from the experiences of the large companies first," says Mariska van de Luur, member of the board of directors of KPMG Netherlands. But Vaessen and she are not in favor of exclusion. "For example, those medium-sized companies also contribute significantly to the CO ₂ emissions in Europe."

Accountants are concerned that the principle of so-called double materiality is being jeopardised. This means that a company is obliged to properly explain two aspects in its sustainability report. What is the impact of climate and other sustainability issues on its own financial results? And which of the company's activities have an impact on the environment, nature and society? There were rumours that the Commission also wanted to change this principle, but this is not yet reflected in the leaked proposals. "Europe has set a standard in this way, which has been adopted by countries such as China and Japan. It would be a real shame if this were abandoned," says Vaessen.

The companies that have approached the Commission also attach great importance to this principle of double materiality. “We have been doing this analysis for years, long before the CSRD came into effect,” says Maurice Loosschilder of Signify. “It gives a good indication of the issues your company should be concerned about and what it should work on. Moreover, if you compare different companies on this, you can really see what the impact of an entire sector is and what an individual company contributes to it.”

Nestlé's Vandewaetere shares this view. "This is the kind of business management that society expects from companies in the 21st century. I have stressed to competitors and to other members of the European Round Table that this legislation is on the right track."