New publication criticises EU U-turn on sustainability

Professor Velte, the ‘Omnibus’ has quickly weakened three major sustainability regulations, which you criticise in a recent publication. What is the background to this?

At its core, the Omnibus is an attempt by the EU Commission to revise and water down several sustainability regulations at once – primarily the Corporate Sustainability Reporting Directive (CSRD), the European Supply Chain Directive (CSDDD) and the Taxonomy Regulation, which in turn defines sustainability criteria. Originally, a large number of companies, including numerous medium-sized firms, were to be subject to reporting and due diligence requirements. This group has now been massively reduced. Estimates suggest that 80 to 90 per cent of the companies originally affected have been removed from the scope. Essentially, only very large corporations remain.

How did this significant change of course come about?

There are a number of reasons. Firstly, the geopolitical situation: the war in Ukraine, economic uncertainty. Secondly, political shifts – in the US due to Trump's anti-sustainability agenda, but also in Europe due to changing majorities. And thirdly, home-grown pressure: many companies and associations were overwhelmed and frustrated. They lobbied heavily because they perceived the regulation as a bureaucratic monster. The Commission has taken this pressure on board.

Hand on heart: wasn't this criticism justified?

What was actually well-intentioned was implemented too quickly and without sufficient thought. Small and medium-sized enterprises suffered in particular. Many smaller companies had neither the personnel nor the expertise to suddenly collect extensive ESG data. It must be said clearly: in its original form, the regulation was simply unworkable for many. At the same time, the baby has now been thrown out with the bathwater.

What do you mean by that?

Climate risks, supply chain problems, human rights issues, biodiversity loss – all of these remain a reality. Sustainability does not disappear just because reporting requirements are reduced. And companies are still under pressure: from banks, insurance companies, large customers, investors, employees and consumers. Anyone who is part of a large corporation's supply chain will still have to provide data – even without a legal obligation to do so. The only difference is that there is now no uniform framework. And that is precisely what increases uncertainty. Further training remains essential for companies.

What specific knowledge are many companies lacking?

Firstly, systematic information: what does sustainability mean beyond reports? How are climate, supply chain, biodiversity, social issues and economic efficiency connected? Secondly, methodological competence: how do I collect reliable data? How do I set up management systems? How do I prevent greenwashing? Thirdly, interdisciplinary know-how: this involves environmental sciences, law, risk analysis and digitalisation. The classic qualification profile is no longer sufficient for this. Anyone working in business today must also think in scientific, political and legal terms.

There is another side to this: the auditors. What does the reform mean for small firms in particular?

In future, sustainability information will have to be audited, even on a reduced scale. This is highly complex. Not only figures will be audited, but also emission models, supply chain risks and environmental impacts. This requires new skill sets, both in companies and in auditing and consulting firms. If we do not provide extensive further training in this area, there is a risk of either greenwashing or a concentration of power among a few large providers.

Many say that when the economy is doing badly, companies simply cannot afford sustainability. Are these voices right?

I consider this to be a simplistic argument. Of course, many companies are under enormous pressure. But transformation without qualifications does not work. If we take sustainability, digitalisation and AI seriously, then we are talking about a profound structural change. This will determine whether companies are still competitive in five or ten years' time. Further training is part of risk prevention to remain globally competitive as a company.

So sustainability remains a factor that makes companies economically successful, especially in the long term?

Just one example: the automotive industry made Germany economically great. Now the phase-out of combustion engines has been reversed. In the short term, this may help the German economy, but in the long term, China will leave us behind. Asia has long dominated the production of electric cars on the world market. This case is not the only one that makes it clear: those who find sustainability too expensive today will pay a high price in the future.

Thank you very much for the interview!