It feels like deregulation. But it may be an opportunity for something better

OPINION

In recent months, we’ve seen a significant watering-down of sustainability reporting rules. Just now, we’re in reverse gear. It feels like deregulation. With its Omnibus reforms, the EU has promised to reduce reporting rules. In the US, the Securities and Exchange Commission’s climate disclosures are on indefinite pause. And, in Canada, the government has called a halt to work on new sustainability reporting requirements.

It feels like deregulation, but it may also be an opportunity to redesign our reporting rules, reduce the administrative burden on companies and free up sustainability teams to do what they’re supposed to be doing: making companies more sustainable.  

It’s worth asking first, what’s going on? What’s driving this deregulation?

The most obvious answer is: Trump. As Trump’s administration peels back regulation in the US, it’s forcing other countries to reassess their own. That’s because they’re worried about becoming uncompetitive, at least in the short term. When the EU announced its Omnibus reforms, it said it was doing so to make the EU’s economy “more prosperous and competitive”. The Canadian government said something similar. 

Sustainability sceptics

It’s also coming from the companies themselves, particularly those with interests in the US. If they continue with climate and DE&I initiatives, they fear a backlash from the Trump administration. So, not surprisingly, they’re putting on the brakes.

Deregulation is also causing uncertainty – companies, whether in Europe or the US, have no idea what rules they’ll eventually have to contend with. In such circumstances, very few CEOs would sanction further investment in sustainability reporting.

In boardrooms, something else is going on. There were always sustainability sceptics. Until now, those sceptics had taken a back seat – after all, sustainability reporting was a matter of compliance. Now, they’re more willing to speak out – for good reason if their business has interests in the US.  

So what happens next?

This time, the answer is: we don’t know. Change, however, brings its own opportunities. Deregulation may have the effect of clearing out bad regulation. In the EU, for example, it may remove the excesses of the CSRD and CSDDD, and leave us with better, more effective regulation. 

What would that look like?

Simple, easy to understand and comply with – that much is obvious. But also regulation that focuses on big companies – i.e., those that are big enough to make a real difference to climate change… to working conditions… to biodiversity… to human rights, and so on…

And regulation that requires these companies to report on issues that matter most to those around them. In other words – auditors take note – regulation that prioritises the outcome, not the process.

These are the basics. But, with current complex regulations, we’re at risk of losing sight of them.

So, last question – what are the chances that this will happen? 

Well, the EU says it wants to simplify regulations with its Omnibus reforms, and make reporting more accessible and efficient. There are still politicians and policymakers in Europe willing to make the argument for sustainability. Climate change is still a threat – and DE&I was a good idea six months ago, and still is.

All of which suggests this may not be deregulation – but improvement.

There’s just one caveat: Trump has more than three years still to serve. And who knows where we’ll be in three years’ time?

Abbreviations: 

CSRD: Corporate Sustainability Reporting Directive
CSDDD: Corporate Sustainability Due Diligence Directive
DE&I: Diversity, equity and inclusion