The EU should remember how past leadership on corporate reporting created a competitive advantage
By Carol Adams, Chair of the Global Sustainability Standards Board
There has long been a tension between so-called “reporting burden”, political expediency and providing the transparency that enables efficient markets and sustainable development. Last month, this tension resurfaced in Brussels, as the first “Omnibus” package significantly narrowed the scope of the EU’s incoming Corporate Sustainability Reporting Directive (CSRD), reducing both the information needing to be disclosed and the number of companies required to report.
This change risks losing sight of what is important. While appeasing those advocating for less regulation, and reduced transparency, may seem appealing in the short term, history shows that taking the perceived easy path could come with significant long-term costs and lost opportunities. Reduced reporting will ultimately impact the very companies and investors that support weakening regulations.
The research is clear: enforced regulation is the most effective way to shift the corporate focus from short-term profit generation to producing long-term value for national economies, people and the environment. Companies and their investors benefit from robust markets, prosperous people and a healthy environment.
Financial reporting harmonization unlocked lasting benefits
Vested interests have always been keen to push back on a perceived excessive reporting burden. Yet consider the benefits that stemmed from financial reporting harmonization in the latter part of the 20th century — something I worked through both as a financial auditor and as a professor of accounting in my research and teaching.
Beginning in the late 1970s, Europe embarked on a significant journey to align financial reporting regulation across member states. Two landmark company law directives (the 4th and 7th Directives) aligned and improved the formats and content of financial statements and accounting practices.
The leadership position that Europe took helped address the very significant differences in financial reporting practices across jurisdictions, with the aim of fostering cross-border investments, bolstering economic integration and access to capital, and reducing the costs of reporting across multiple markets.
Resisting change is nothing new
Like today, this didn’t happen without resistance. There were complaints of regulatory burden and additional compliance costs, given the dramatically different approaches to accounting that previously existed across Europe. Many similar arguments against corporate sustainability reporting have been echoed in Brussels backrooms over the past few weeks.
Europe persisted with pushing through these important changes, but if the naysayers had gotten their way, capital would be more expensive and many of the global development benefits we have enjoyed over the past few decades would have been stymied.
There are some key differences when it comes to corporate sustainability reporting — history doesn’t necessarily repeat, but it often rhymes. However, the big question remains the same: whether the initial cost and headache will be worth it in the long run. This isn’t always obvious — the benefits of sustainability reporting are often not immediately apparent.
Better reporting can enable green growth
The issue today is less about harmonization. The GRI Standards already offer a common global language for sustainability reporting used by thousands of companies around the world, including 77% of the world’s largest 250 companies.
And the International Auditing and Assurance Standards Board (IAASB) and the International Code of Ethics for Professional Accountants (IESBA), encouraged by the International Organization of Securities Commission (IOSCO), have developed standards to align the accountancy profession with sustainable development thinking.
The main issue is getting more companies to report. Because alongside better regulation, innovation and incentives, good quality sustainability reporting is a key part of the formula for delivering the results that Europe is seeking to achieve: green growth, a healthy society, clean industry, resource efficiency and greater energy independence. Indeed, the European Commission recognized the significant value in voluntary reporting, which many thousands of companies globally already do without regulatory requirements.
Transparency on impacts, risks and opportunities
But requiring more companies to produce quality data on their most significant impacts will remain essential for fully baking sustainable development and long term prosperity into the economic system. These impacts can then be incorporated into strategy and business models, investment decisions, policy and regulation, enabling more effective risk management and smarter long-term decisions.
Since its inception, the CSRD has maintained the need for reporting on actual impact on people and the planet, over a narrower focus on risks and opportunities for investors. Fortunately, this approach was not a casualty of last month’s changes, as some had feared.
This is to be celebrated, because otherwise businesses would have been sharing only part of the real story, providing far less information to stakeholders — including investors, customers, employees, policymakers, regulators, and communities — who have a legitimate interest in corporate behavior.
To do otherwise would have left businesses and their investors exposed to otherwise hidden threats that will compromise long-term resilience and overall market stability, particularly in the face of the systemic upheavals we expect to see from climate change, biodiversity loss and social unrest in the coming decades.
EU needs to show global leadership
Change will always face resistance, but true leadership requires a clear perspective on the future you want to create. In an era of growing global and political polarization, the EU should continue to build on its legacy of promoting comprehensive cooperation and trust, as a basis for shared prosperity and peace.
The comparatively small hurdle of greater compliance costs today can yield outsized returns tomorrow — a pattern proven by the historical successes of Europe reshaping corporate reporting. As the European Commission’s clean growth lead, Teresa Ribera, made clear when defending the continued focus on sustainability impacts, “going back to the past is not a solution”.
But we can certainly learn from the lessons of the past. And leadership now is sorely needed.
· This article is an expanded version of the opinion piece by Carol Adams that was published by Reuters on 27 February 2025.
ABOUT THE AUTOR
Carol Adams is Chair of the Global Sustainability Standards Board (GSSB), the independent body responsible for setting the GRI Standards, the world’s most widely used sustainability reporting standards. She is Emeritus Professor of Accounting at Durham University Business School, and in the top 20 accounting academics in the Stanford Top-Cited Scientists list. Carol’s work is at the nexus of corporate reporting and sustainable development, pursued through research, policy work, senior leadership roles and board positions.
