EU struggles to balance its green and growth goals

Welcome back. This has been a big week in Brussels, with new details on how the European Commission aims to breathe fresh life into the EU economy. Decarbonisation remains central to its strategy — but its plan to slash green and social disclosure rules shows that Brussels’ passion for sustainability has hard limits.

Have a good weekend.

European climate policy

EU sends mixed signals about dedication to climate goals

“We are not moving away from our Green Deal targets,” European Commission vice-president Valdis Dombrovskis told reporters on Wednesday. “They very much remain in place.”

Dombrovskis was one of six top commission officials who met the press to deliver variations on the same theme, as they issued a major package of green and industrial policy announcements. The EU’s executive branch, they insisted, was making a push to accelerate economic growth and cull needless bureaucracy without sacrificing its ambitious climate goals.

In truth, however, this week’s package was a very mixed bag, with some promising measures — as well as some clear compromises on sustainability in the pursuit of growth.

There was much to like about the policy document on the Clean Industrial Deal, the centrepiece of commission president Ursula von der Leyen’s agenda for her second term, which aims to create new incentives for low-carbon investment.

One important measure announced is the expanded provision of guarantees through the European Investment Bank, which will de-risk investments in renewable energy and the manufacturing of electric grid components.

Another, which had been recommended in a major report last year by former Italian prime minister Mario Draghi, is a targeted reform of rules around state aid, which will make it easier for member state governments to support low-carbon investment in their nations. The commission also announced plans to launch a new Industrial Decarbonisation Bank, with a funding target of €100bn.

All these measures should create new opportunities in Europe for green-minded investors. But those same investors got some less welcome news in the form of a separate document rolling back regulations around corporate sustainability disclosures, which will reduce the data available to them on companies’ environmental and social risks.

The biggest casualty here was the Corporate Sustainability Due Diligence Directive, which passed into law only last July. That law promised to be a game-changer for companies’ approach to human rights and environmental issues in their supply chains, requiring them to identify and address breaches among direct or indirect suppliers, with serious penalties for non-compliance.

Under the commission’s proposal this week, the CSDDD would be hacked back severely. EU companies will now be required in most cases to track practices only among their direct suppliers, not their extended supply chains. They must perform monitoring assessments only once every five years, rather than annually. And, in most cases, they would no longer face legal liability for any abuses at their suppliers.

There have been big changes, too, to the Corporate Sustainability Reporting Directive, under which companies have to file reports on their environmental and social risks and impacts. Companies will now have to do this only if they have more than 1,000 employees and at least €50mn in revenue or €25mn in assets. Previously, companies with as few as 250 employees were in scope. The commission said this would reduce the number of companies reporting under the CSRD by 80 per cent, while still covering the most important carbon emitters.

It’s not certain that these changes will be implemented: they will still need to be approved by the European parliament and by member state governments. The commission may well have a point that the sustainability regulations put a tough burden on smaller EU companies, and threatened business confidence at a time when the US is undertaking a deregulatory blitz.

But the hasty slashing of laws passed only recently, and which have not yet even been fully implemented, smacks of inconsistency. For all the commissioners’ talk of a twin focus on economic growth and sustainability, it’s clear which of the two will take priority when they conflict.

Smart reads

Best of both The EU should reject the “bogus trade-off” between security and climate goals, writes Laurence Tubiana. (Project Syndicate)

Second bite A UK start-up, backed by former shareholders of collapsed Britishvolt, is partnering with a Chinese supplier to try to build an electric vehicle battery factory.

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