Brussels rules out deep changes to green label rules for investments

The definitions of what constitutes a green business investment and what does not are going to be spared from the simplifying cuts that Brussels is going to apply to its green agenda, according to the draft regulatory proposals that the European Commission is going to approve this Wednesday and to which EL PAÍS has had access. This does not mean that the so-called green taxonomy, the classification that establishes which investments can really be considered to contribute to the fight against climate change, is going to come out intact: the companies obliged to follow it in their information on sustainability are greatly reduced. But this norm, which for its defenders is “a cornerstone of sustainable finance” in the EU, will be exempt from profound changes, which means a defeat for Germany, barring a last-minute change, since Berlin was demanding a change.

In this sense, the Commission's initial intention seemed to be to open up this regulation that was approved in 2020. When it presented its plans on "administrative simplification" at the beginning of this month , it indicated that its tactic was to make changes in "the fields of sustainable finance reporting, sustainability due diligence and taxonomy." At first glance, it could be interpreted that its intention was to touch the rules that regulate each of these elements. But finally the third is left out, according to the latest draft seen by this newspaper. However, there is a very substantial indirect reduction in the number of companies that may be potentially affected, since the "omnibus" proposal excludes from the mandatory sustainability reporting requirements all those that do not reach 450 million euros of annual turnover. That is, more than 80% of the companies affected so far, according to the text prepared by the Commission.

“A balance must be found between data generation and reducing the administrative burden,” the EU executive justifies in its proposal. “Sustainability reports from large companies with an average of more than a thousand employees are essential to understanding the transition to a climate-neutral economy,” it asserts. This is not the case, however, for other smaller companies, especially those that, although larger than an SME, do not have a turnover of more than 450 million euros or more than a thousand employees. These companies, Brussels maintains, “should be able to disclose information (…) in a more flexible manner.” In this sense, it concludes, “the Commission must be empowered to establish rules that complement the reporting regime for activities that only partially fit into the taxonomy.”

Brussels has been announcing for some time that it will create a new category of companies, larger than an SME and smaller than a large company, to be exempt from the obligations of large corporations. It has not yet publicly stated the criteria, which are also being the subject of much discussion in the preparation of the proposal to be presented this Wednesday. From the figures that appear in the drafts known so far, it can be deduced that this group of companies will be made up of those with an annual turnover of between 50 and 450 million; and a workforce of between 250 and 1,000 employees.

The promise of an ambitious agenda of “simplification” (in Brussels, the term deregulation is avoided to avoid negative connotations) by the new European Commission that could affect the objectives set during the previous legislature to combat climate change, such as a carbon-neutral economy by 2050, has raised suspicions in many sectors, not only the most purely ecological ones. The Executive of the Union always tries to calm these fears by clarifying that it does not plan to lower these goals. However, it does seem that the controls and sanctions foreseen for compliance in the private sector are going to be reduced, which in some way discourages the implementation of strategies to achieve this. The Commission assures that it has consulted all interested parties for its proposals. But it seems to have listened more carefully to companies than to other groups.

Among those who have viewed the simplifying agenda with suspicion is the Spanish Government itself, which, more specifically, has warned of the risk of touching the taxonomy. Last week, the third vice-president and minister for the Ecological Transition, Sara Aagesen , and the Minister of Economy, Carlos Cuerpo , sent a letter to the commissioners responsible for the omnibus package, including the Spanish Teresa Ribera (Aagesen's predecessor), establishing as a red line precisely not to touch the legal text of the taxonomy, which they described as a “cornerstone of the EU's sustainable finance framework”.

The draft of the EU proposal has, however, ignored another request from Spain, which called for maintaining the obligation for all companies, regardless of their size, to submit the sustainability reports required by the directive on corporate sustainability reporting (CSRD). That directive, which came into force in 2023, although it has not yet been fully implemented, is going to be changed and it is through this indirect route that eight out of 10 companies are removed, according to calculations by the Commission. The new initiative proposes that these reports be voluntary for companies with less than 450 million euros. However, if they choose to do so, they must follow the method proposed by the taxonomy.

“This opt-in approach will completely eliminate the cost to companies of complying with taxonomy reporting rules for companies with net turnover not exceeding €450 million and which do not claim that their activities are associated with economic activities that can be considered environmentally sustainable under the taxonomy regulation,” Brussels hopes.

One of the fears that exists with the three packages announced by the Commission to reduce the current administrative burdens of companies by between 25% and 35%, the true objective of this simplifying agenda, is that once they reach the hands of the co-legislators (European Parliament and Council of the EU) they will be used to end the strategy of fighting climate change deployed in the previous legislature. This risk, say sources from the European Parliament, is very present with the current configuration of forces in both institutions: in Parliament the extreme right, which denies global warming despite scientific evidence, has an absolute majority together with the European People's Party, which already in the last stages of the last legislature began to show its skepticism with the green agenda. In the Council of the EU (that is, the member states) the conservative dominance is overwhelming, and it will be even more so after the victory of the Christian Democrats in the German elections this Sunday.