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New EU and US regulations could limit ESG data access and investor influence, raising concerns about transparency and accountability in sustainable investing.
Recent regulatory developments in the EU and US are posing significant challenges for sustainability-focused investors. Proposed changes to disclosure requirements could limit access to reliable ESG data and hinder meaningful corporate engagement, raising concerns about the tools available in the future for sustainable capital allocation.
On 28 February, the European Commission introduced the first in a series of Omnibus proposals aimed at reducing the regulatory burden on European companies. This initial package focuses on sustainability reporting, with implications across the Corporate Sustainability Due Diligence Directive (CSDDD) and the Corporate Sustainability Reporting Directive (CSRD).
As an example, the key proposed changes to CSRD include:
1. Limiting mandatory reporting to companies with over 1,000 employees, up from the previous threshold of 250. This removes 80% of companies from the reporting scope, creating a significant data gap.
2. Delaying implementation by an additional two years.
While the aim is to streamline regulations, these changes risk undermining the original objectives of the EU’s Green Deal, ensuring high-quality, comparable sustainability data, improving risk management, enhancing transparency, and steering private investment towards sustainable outcomes. Weakening reporting requirements could significantly reduce the availability of ESG data for investors. On the upside, the regulation is intended to remove red tape and reporting burdens for European companies and strengthen their competitiveness against US and Chinese corporations that operate with less sustainability restrictions and oversight. The proposal will now be reviewed by the European Parliament and the Council of the EU, with ongoing uncertainty about the final outcome.
In the US, the Securities and Exchange Commission (SEC) has issued new guidance on Schedule 13G versus 13D filings, impacting ESG-related shareholder engagement. Under this guidance, investors using ESG stewardship as a means to influence corporate behaviour could be required to file under Schedule 13D, a more stringent disclosure requirement. Specifically, the SEC states that Schedule 13G is unavailable if an investor:
1. Conditions its support for board nominees on the company’s adoption of an ESG-related recommendation.
2. Discusses voting policies with management, linking support for board nominees to changes in ESG performance.
In effect, this limits investors’ ability to apply pressure on companies to improve ESG practices and holds board members accountable for failing to meet sustainability expectations. This could significantly weaken the role of shareholder engagement in advancing corporate sustainability efforts.
Both developments—whether limiting corporate disclosure in Europe or restricting investor engagement in the US—raise concerns about the ability of responsible investors to access critical data and drive positive change. As these regulatory changes evolve, the sustainable investment community will need to closely monitor their implications and advocate for frameworks that uphold transparency and accountability in ESG reporting and stewardship.
Author: Emil Stigsgaard Fuglsang
Date: March 13 2025
Recent regulatory developments in the EU and US are posing significant challenges for sustainability-focused investors. Proposed changes to disclosure requirements could limit access to reliable ESG data and hinder meaningful corporate engagement, raising concerns about the tools available in the future for sustainable capital allocation.
On 28 February, the European Commission introduced the first in a series of Omnibus proposals aimed at reducing the regulatory burden on European companies. This initial package focuses on sustainability reporting, with implications across the Corporate Sustainability Due Diligence Directive (CSDDD) and the Corporate Sustainability Reporting Directive (CSRD).
As an example, the key proposed changes to CSRD include:
1. Limiting mandatory reporting to companies with over 1,000 employees, up from the previous threshold of 250. This removes 80% of companies from the reporting scope, creating a significant data gap.
2. Delaying implementation by an additional two years.
While the aim is to streamline regulations, these changes risk undermining the original objectives of the EU’s Green Deal, ensuring high-quality, comparable sustainability data, improving risk management, enhancing transparency, and steering private investment towards sustainable outcomes. Weakening reporting requirements could significantly reduce the availability of ESG data for investors. On the upside, the regulation is intended to remove red tape and reporting burdens for European companies and strengthen their competitiveness against US and Chinese corporations that operate with less sustainability restrictions and oversight. The proposal will now be reviewed by the European Parliament and the Council of the EU, with ongoing uncertainty about the final outcome.
In the US, the Securities and Exchange Commission (SEC) has issued new guidance on Schedule 13G versus 13D filings, impacting ESG-related shareholder engagement. Under this guidance, investors using ESG stewardship as a means to influence corporate behaviour could be required to file under Schedule 13D, a more stringent disclosure requirement. Specifically, the SEC states that Schedule 13G is unavailable if an investor:
1. Conditions its support for board nominees on the company’s adoption of an ESG-related recommendation.
2. Discusses voting policies with management, linking support for board nominees to changes in ESG performance.
In effect, this limits investors’ ability to apply pressure on companies to improve ESG practices and holds board members accountable for failing to meet sustainability expectations. This could significantly weaken the role of shareholder engagement in advancing corporate sustainability efforts.
Both developments—whether limiting corporate disclosure in Europe or restricting investor engagement in the US—raise concerns about the ability of responsible investors to access critical data and drive positive change. As these regulatory changes evolve, the sustainable investment community will need to closely monitor their implications and advocate for frameworks that uphold transparency and accountability in ESG reporting and stewardship.
Author: Emil Stigsgaard Fuglsang
Date: March 13 2025
