EU plans to ease ESG reporting may sideline 80% of firms. Carbone 4’s Christina Stuart warns this shift could weaken transparency—and Europe’s climate credibility.
On 21 April 2021, the European Commission announced the adoption of the Corporate Sustainability Reporting Directive (CSRD), in line with its commitments under the European Green Deal. This directive amends the Non-Financial Reporting Directive (NFRD), increasing reporting requirements for companies within its scope as part of efforts to expand sustainability reporting.
However, on 26 February, the Commission adopted a package of proposals aimed at simplifying EU rules and enhancing competitiveness. “These proposals will reduce the complexity of EU requirements for all companies, including SMEs and small mid-caps, thereby focusing sustainability reporting obligations on those companies most likely to have the greatest impact on people and the environment,” the EU Commission stated. “Additionally, the package aims to ensure that the reporting requirements imposed on large companies do not overburden smaller companies in their value chain.”
As a result, 80% of companies would fall outside the CSRD’s scope. The directive’s implementation timeline, which varies according to company size and category, is also generally postponed by two years.
What will be the impact on Luxembourg companies?
Christina Stuart, Co-Managing Director at Carbone 4 Luxembourg, discusses the implications for climate action.
Christina Stuart, how did you react to this simplification?
Over the past decade working on climate change and the past eight years with Carbone 4—now as head of our Luxembourg entity—I have become acutely aware of climate change’s local impacts.This so-called “omnibus”; simplification has an aspect that I find ironic. Before the CSRD, the NFRD already provided a framework for sustainability reporting and transparency, including on climate change.
However, this framework lacked clarity, precision, and key indicators. Because of this lack of sufficient information, financial players struggled to determine whether an investment was truly sustainable. The CSRD was introduced to restore credibility to sustainability reporting. Now, regulators have decided to dilute the CSRD’s reporting requirements by adding yet another layer of simplification to a regulation that was originally meant to provide clarity.
What explains this policy reversal?
Primarily, pressure from companies seeking to reduce the administrative burden of CSRD reporting, which represents a cost for many businesses. However, let’s take a step back: this cost is significant mainly in the first year of reporting, and non-financial reporting costs remain far lower than financial reporting costs.
With around 50,000 companies involved, the original CSRD framework would have required processing approximately 1,000 data points, generating a significant workload. Furthermore, the current geopolitical and economic climate complicates matters. Businesses’ priorities are not necessarily aligned with environmental concerns, and this uncertainty has economic and competitive implications, making regulations harder to implement. Additionally, the CSRD adds to other regulatory obligations companies must comply with, further increasing their costs.
The February 26 decision has sparked debate over whether climate ambitions are being taken seriously. But we must acknowledge a crucial point: regulation alone will not drive the transition. Climate change is already here.
How are Luxembourgish companies implementing this reporting?
Most companies in Luxembourg are SMEs, and many have yet to begin implementing CSRD reporting standards. Unlike France, Luxembourg has not yet transposed the directive. However, financial firms subject to the SFDR continue to request sustainability data from companies, even though CSRD transposition is still pending.
Given this inertia, uncertainty is likely to persist in Luxembourg for several years. Nevertheless, in the medium term, companies will begin to take action. They will anticipate risks linked to climate change, as these risks remain ever-present. Regulation is not the sole driver of corporate action—companies also respond to real economic risks and opportunities.
Given this inertia, uncertainty is likely to persist in Luxembourg for several years. Nevertheless, in the medium term, companies will begin to take action.
Data supports this: 73% of Luxembourgers report experiencing extreme climate events, such as floods. At the corporate level, an EIB study found that 59% of companies have already suffered direct consequences of climate hazards, particularly in construction. Yet, only 20% of Luxembourg firms have climate adaptation plans, compared to 50% across Europe.
Businesses face very tangible risks. While European regulation provides a framework, physical reality extends beyond regulatory concerns. Unfortunately, the media often focuses solely on regulation rather than broader environmental challenges. However, transparency frameworks are essential. Without them, investors and consumers will struggle to differentiate between genuine sustainability efforts and greenwashing.
How is the insurance sector preparing for the CSRD?
The insurance industry plays a pivotal role in climate change mitigation and adaptation. Insurers are doubly impacted: they suffer the consequences of climate events while also having to adjust their coverage models accordingly. Some businesses may assume that being insured eliminates the need for adaptation measures. However, insurers recognise that certain risks will soon become uninsurable. In some industries, climate risks have escalated to the point where insurers can no longer offer coverage. Former Axa CEO Henri de Castries once stated: “A 4°C world would certainly no longer be insurable.”
Insurers also support the transition by prioritising low-carbon assets, such as green vehicles and sustainable real estate, and by promoting circular economy models that emphasise repair over replacement.
How does Carbone 4 support companies in the face of the CSRD?
Despite evolving regulations, our mission remains unchanged: helping organisations implement low-carbon strategies and adapt to environmental challenges. We provide two core services: reducing companies’ environmental impact and strengthening their resilience to climate risks. This involves conducting carbon footprint analyses, climate risk screenings, and biodiversity assessments, setting emissions reduction targets, and developing action plans.
For Luxembourg, our role is to contribute to the EU’s broader decarbonisation efforts. Ultimately, while regulations evolve, a clear and transparent framework remains crucial. Businesses need reliable data to make informed decisions. Action for climate resilience is necessary—not just to comply with regulations, but to anticipate risks and seize opportunities in a changing world.
This article was published in the 6th edition of Forbes Luxembourg.
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