European business leaders have said that their companies face an “impossible task” implementing the bloc’s new environmental reporting requirements.
Finance directors of companies including BMW, Telefónica and BP have urged the European Commission to improve guidance and delay the implementation of the EU’s sustainable investment rules, known as “the taxonomy”, describing them as unclear, burdensome and of little value to investors. This new reporting is supposed to inform investors so they can channel money into sustainable activities.
“Rushing implementation, unclear definitions and divergent interpretations have resulted in reports that are not sufficiently relevant, comparable or reliable enough to be useful for investors,” wrote BMW finance director Nicolas Peter on behalf of the European Round Table for Industry (ERT), which represents more than 20 businesses including Michelin and AstraZeneca.
“The taxonomy disregards and contradicts existing, robust EU legislation,” such as rules on harmful chemicals, Peter added.
The taxonomy is a classification system that sets thresholds for activities to indicate the extent to which they either benefit or harm the environment. The regulation has already been mired in controversy after Brussels designated gas and nuclear investments as sustainable under certain criteria.
Aside from the taxonomy, businesses must comply with other new obligations setting standards for reporting on sustainability criteria.
The letter stated that companies and auditors would find it impossible to comply with all the overlapping requirements. As a result, investors would receive low-quality reports that could not be compared with one another because definitions under the taxonomy were too loose.
Further pieces of legislation covering four environmental objectives, including pollution prevention and the protection of marine life, are due this year. But Peter wrote in the letter to financial services commissioner Mairead McGuinness that the current taxonomy needed to be “evaluated and improved before expanding it to other environmental objectives”.
He added that the classification system also did not match those in other jurisdictions, leaving EU-based multinationals facing an extra burden of reporting on standards that did not apply elsewhere. “EU definitions are often not relevant or applicable,” Peter wrote.
He included a 22-page annex with detailed suggestions on how to improve the legislation, such as defining what a supply chain covers and clarifying the meaning of “do no significant harm”. Peter also pointed out that the taxonomy used definitions of operational expenditure and capital expenditure “that are complex and not aligned with mainstream financial reporting”.
Components for zero-emission vehicles would not be classed as green whereas the finished vehicle would be, Peter said.
The commission declined to comment and said that the letter would be replied to in due course.
European industry, still struggling from the after-effects of Covid-19 and last year’s record-high energy prices, has become increasingly vocal about the bureaucratic burden of complying with EU rules. Ursula von der Leyen, the commission’s president, recently promised to cut red tape by 25 per cent and is expected to propose a plan to do so this year.
When completing their quarterly reports this year, companies spent up to 150 staff days and about €150,000 on consultants in order to comply with the first two areas of the taxonomy, according to figures provided by ERT, even if their activities had only limited connections to the criteria addressed.