The EU’s new green reporting rules are ‘impossible’, say businesses

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European business leaders have said their companies face an “impossible task” by implementing the bloc’s new environmental reporting requirements.

CFOs of companies including BMW, Telefónica and BP have urged the European Commission to improve guidance and delay implementation of the European Union, known as ‘the taxonomy’, describing them as unclear, burdensome and of little value to investors. This new report should educate investors so they can channel money into sustainable businesses.

“Rush implementation, unclear definitions and divergent interpretations have resulted in reports that are not sufficiently relevant, comparable or reliable to be of any value to investors,” BMW Chief Financial Officer Nicolas Peter wrote on behalf of the Roundtable’s CFO platform. Union for Industry (ERT), which brings together the financial directors of around 30 companies.

“The taxonomy ignores and contradicts robust existing EU legislation,” such as rules on harmful chemicals, added Peter.

Taxonomy is a classification system that sets thresholds for activities to indicate the extent to which they benefit or harm the environment. The regulation has already been the subject of controversy following the designation of Brussels investments in gas and nuclear as sustainable under certain criteria.

In addition to the taxonomy, companies must comply with other new obligations that set standards for reporting on sustainability criteria.

The letter stated that companies and auditors would be unable to comply with all of the overlapping requirements. As a result, investors would receive low-quality reports that couldn’t be compared with each other because the definitions in the taxonomy were too vague.

More legislation is expected this year covering four environmental objectives, including the prevention of pollution and the protection of marine life. But Peter wrote in the letter to financial services commissioner Mairead McGuinness that the current taxonomy needed to be “evaluated and improved before extending it to other environmental objectives”.

He added that the classification system also did not match that of other jurisdictions, leaving EU-based multinationals with the added burden of reporting on standards that did not apply elsewhere. “EU definitions are often not relevant or not applicable,” wrote Peter.

It included a 22-page annex with detailed suggestions on how to improve the legislation, such as defining what a supply chain covers and clarifying what ‘does not cause significant harm’ means. Peter also pointed out that the taxonomy used definitions of operating expenses and capital expenditures “that are complex and out of alignment with traditional financial reporting.”

Components for zero-emission vehicles would not be classified as green while the finished vehicle would be, Peter said.

The commission declined to comment and said the letter would be answered in due course.

European industry, still grappling with the fallout from Covid-19 and last year’s record energy prices, has become increasingly vocal about the bureaucratic burden of complying with EU rules. Ursula von der Leyen, chair of the commission, recently promised to cut red tape by 25%, and she is expected to come up with a plan to do so this year.

In completing their quarterly reports this year, companies spent up to 150 staff days and around €150,000 on consultants to comply with the first two areas of the taxonomy, according to data provided by ERT, even though their businesses only had links limited with the criteria addressed.