It doesn’t matter how old you are, the month of September, with its back-to-school vibes and subtle hints of cooler temperatures, always summons a mixed sense of anxiety and renewal. We’re all a little sad that the party’s coming to an end, and some of us may even have those recurring nightmares about forgetting to go to class or being unprepared for exams, but we’re also invigorated by the prospect of a clean slate as everyone gets back down to business.
In the world of corporate sustainability, that late summer rite of renewal is amplified by the return of lawmakers and regulators who had largely put their biggest initiatives on hold for the months of July and August. In Europe, of course, that meant substantive decisions on next steps for the Omnibus Simplification Package, the closure of the ESRS consultation period and the European Union Deforestation Regulation (EUDR) – now looking like it is potentially delayed for another year, would have to wait until late September. In the United States, we are starting to see how individual state-level and international sustainability requirements might affect both national and multinational U.S. companies, and on Sept 24, the California Air Resources Board published a preliminary list of Reporting/Covered Entities in relation to its planned reporting requirements under Senate Bill (SB) 253 – Greenhouse Gas Reporting and SB 261Climate Related Financial Risk Disclosure Programs.
Now that we’re a couple of weeks back into the swing of things and September is nearing its end, it’s becoming clearer what the key focal points will be on the sustainability agendas of global regulators. Following is a cheat sheet for those who may not have been paying attention on the first day of class.
Ghosts of the Draghi Report to Haunt EU Lawmakers
One of the bigger items lingering on the European Commission’s to-do list this year is to finalize its Omnibus Simplification Package, an initiative focused on harmonizing and simplifying the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD) and the EU Taxonomy Regulation. Read what you will into the word “simplification,” but it’s looking very likely to mean reducing the scope of companies who will be impacted and softening some of the most onerous compliance requirements associated with the legislation.
The big issue European lawmakers are contending with is the idea of anti-competitiveness. Europe has long been considered a leader in corporate sustainability regulation, but not everyone thinks that’s a good thing. That sentiment came to a head in September of 2024 when Mario Draghi, the former Italian prime minister and former European Central Bank president, issued a report identifying issues related to the EU regulatory regime and outlined a new industrial strategy to make Europe more competitive with the U.S. and China. Since then, just a fraction of Draghi’s proposals have been adopted, but his sentiments are clearly influencing lawmakers and elected officials throughout Europe, even more so now 1 year later.
As I wrote in July, the leaders of both Germany and France have voiced their concern about EU sustainability regulations making European companies less competitive. And, most recently, the European Financial Reporting Advisory Group (EFRAG), the group tasked with drafting the European Sustainability Reporting Standards (ESRS), under the CSRD, introduced and has been sharing its proposal for simplified reporting requirements under the CSRD. Now that the consultation period has closed, we should have already had a first look at what EU sustainability regulation might look like under the Omnibus Simplification Package.
U.S. Continues to Wield Heavy Hand in Global Policy
The other big wild card in any discussion of corporate sustainability regulation is the role the U.S. is playing in global policy decisions. Clear evidence of this was on display in the European Commission’s August 21 Joint Statement on a United States-European Union framework on an agreement on reciprocal, fair and balanced trade. Buried in the list of concessions the EU plans to make to the U.S. in exchange for a favorable trade agreement is an offer to “address U.S. concerns regarding the imposition of CSDDD requirements on companies of non-EU countries with relevant high-quality regulations.”
Anyone reading this closely will recall a 2023 analysis conducted by LSEG which estimated that over 10,000 non-European companies with approximately 3,000 of those being U.S. companies, would be subject to EU sustainability regulations even though they are not head quartered in the EU. That may not end up being the case in the new world order.
Another developing story to watch in the U.S. is the role of the Securities and Exchange Commission (SEC) on sustainability-related disclosures and reporting requirements. In a recent speech at the OECD Roundtable on Global Financial Markets, SEC Chairman Paul S. Atkins raised concerns about the IFRS Foundation’s International Sustainability Standards Board (ISSB), suggesting that its focus on environmental reporting could jeopardize the ability of foreign companies to continue using financial statements prepared in accordance with IFRS standards in the U.S. He explained: “This recent expansion of the IFRS Foundation’s remit cannot divert its focus from its long-standing core responsibility of funding the IASB. In turn, the IASB must promote high-quality accounting standards that are focused solely on driving reliable financial reporting and are not used as a backdoor to achieve political or social agendas.” However, as I mentioned earlier this month, jurisdictions are still committing to adopting the IFRS S1 and S2 with 31 already in process.
Real-World Implications
All of these developments suggest the sweeping, bloc-wide regulatory reforms many businesses were expecting are likely to have a large number of carve-outs and caveats that make them a little less rigid and a little more complicated to navigate. As we’ve seen in countless other examples where efforts to create a single, global standard are met with administrative inertia and political pressures, the end-result is often a fragmented patchwork of federal and local regulations that need to be analyzed and interpreted on a region-by-region and company-by-company basis.
In a strange way, this new era of deregulation will likely make sustainability compliance even more complicated for companies operating in multiple jurisdictions. For those caught in the middle, now’s the time to start doing your homework and preparing for the inevitable tests to come.