EU Signals Flexibility on ESG Rules After Threats From Qatar, US

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(Bloomberg) — Europe signaled it’s willing to accommodate international concerns about its ESG rules, as the bloc fields threats from the US and Qatar.

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The comments follow a barrage of complaints targeting the EU’s corporate sustainability reporting and due diligence directives, known as CSRD and CSDDD. Though both directives are in the process of being wound back, they’re still set to apply to companies outside the bloc if they do business inside the EU.

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“Obviously as the European Union, we retain our regulatory autonomy,” Valdis Dombrovskis, the EU’s economy and productivity commissioner, said in an interview with Bloomberg Radio. “On other hand, of course, we also need to listen and acknowledge concerns which various partners around the world are having and reflect on the implications.”

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CSRD and CSDDD are part of the EU’s broader package of measures adopted in recent years to green its economy and ensure corporate value chains comply with human rights standards. 

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CSDDD, which is proving particularly controversial, is intended to force companies to provide climate transition plans. It also exposes them to penalties if they fail to address human rights violations in their value chains. 

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In a recent post on the social media platform X, Qatar’s Minister of Energy Affairs HE Saad Bin Sherida Al-Kaabi said if “CSDDD is not amended or canceled, we will not be sending LNG to Europe, that’s for sure.” In the US, attorneys general from 16 states last month sent letters to companies including Meta Platforms Inc. insisting they ignore Europe’s climate and DEI requirements.

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US business associations have also called on Commerce Secretary Howard Lutnick to intervene. During his confirmation hearings back in January, Lutnick said he was ready to consider using “trade tools” in retaliation if the EU didn’t rein in its ESG rules.

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Europe is still in the process of simplifying the directives as part of an omnibus legislative cycle that looks set to drag into next year. The bloc has already dramatically scaled back the scope of both CSRD and CSDDD so that only a tiny fraction of the companies that were originally in scope will now be expected to comply.

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The EU is well aware of American and Qatari concerns, Dombrovskis said.

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“We have heard from many other countries and businesses” and “that’s why CSDDD was part of our first omnibus where we are actually simplifying it quite substantially,” he said.

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While the directives have been scaled back, the fact that extraterritoriality remains part of CSDDD is grounds for “significant concerns,” Paul Atkins, chairman of the US Securities and Exchange Commission, has said.

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According to Dombrovskis, the simplification proposal that the EU has “already put on table both regarding due diligence and sustainability reporting addresses already to large extent those concerns.” 

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There are “many tangible improvements and simplifications” and what’s now important is “that the legislative process moves forward and so simplifications actually become a reality,” he said.

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The European Parliament is due to vote on the latest proposals next week, with lawmakers back at the negotiating table. A compromise proposal failed to garner support last month, opening the door to more draconian changes. If an agreement is reached next week, talks will begin with member states and the European Commission. 

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Business organizations representing companies based in Korea, Japan, India, Australia and the US have warned that the EU is risking “unintended legal and economic barriers,” in a joint statement. They called for limits to EU courts’ jurisdiction in the event of negligence claims.

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—With assistance from Gian Volpicelli.

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