Draghi takes aim at EU sustainability rules in key recommendations

Ex- Italian premier expresses concern about sector specific reporting standards and pressure on SMEs

Mario Draghi has criticised the EU’s corporate sustainability efforts in his much-anticipated roadmap for Europe’s economic survival.  

The former Italian prime minister and European Central Bank president today published nearly 400 pages of advice on ‘the future of European competitiveness’, which saw various pieces of sustainability-related legislation come under fire.

“The EU’s sustainability reporting and due diligence framework is a major source of regulatory burden, magnified by a lack of guidance to facilitate the application of complex rules and to clarify the interaction between various pieces of legislation,” the report said.

It cited figures which suggest that complying with rules like the Corporate Sustainability Reporting Directive (CSRD) and the EU Taxonomy Regulation will cost companies between €150,000 and €1m each.

Draghi called out what he described as “unclear definitions and requirements”, including muddled timelines and methodologies across key rules such as the taxonomy, the Emissions Trading System and corporate reporting obligations.

“Further changes in this framework, including sector-specific reporting standards required by the CSRD, may raise compliance costs,” he warned, referring to plans to provide more specific rules for how companies in different key sectors should use the EU European Sustainability Reporting Standards.

The European Commission has delayed the publication of such guidance, to give firms more time to get to grips with the sector-agnostic rules, but some lobby groups are pushing to have it ditched altogether.

Today’s report also emphasised the “proportionally higher regulatory burden” faced by smaller companies covered by the rules, or required to provide information to their larger clients, who need it to comply themselves.

“Due to value chain effects, the sustainability reporting and due diligence framework does not adequately differentiate SMEs from larger companies,” it stated.

“Moreover, the CSRD is flagged as an example of the lacking proportionality of the EU acquis vis-à-vis mid-caps, as compliance costs represent up to 12.5% of mid-caps’ investment volumes.”

The reflections are likely to be taken seriously at the top levels of EU policymaking. The ‘Draghi report’, as it has become known, was commissioned by Ursula von der Leyen during her previous term of President of the European Commission.

Von der Leyen is starting her second term as President, on the back of an election promise to prioritise the bloc’s competitiveness and support European businesses.  

Specifically, Draghi has recommended that von der Leyen complete her promise to cut reporting obligations by 25% – up to halving them for SMEs – and resist introducing new laws if they undermine competitiveness.

“On this basis, the Commission should choose to postpone initiatives which are particularly problematic from an innovation standpoint or with a disproportionate impact on SMEs,” his report said.