IEEFA warns EU Omnibus package risks undermining bloc’s clean industrial policy

On 26 February, the European Commission announced the Omnibus package of proposals to simplify sustainability rules. The package appears to be a backwards step, at odds with the ramp-up of capital required under the EU Clean Industrial Deal, in IEEFA’s view.  

Public and private financial actors need consistent, comparable and reliable data if they are to make informed decisions. To this end, a stable and comprehensive regulatory framework that promotes transparency and credibility is crucial for navigating energy transition risks and opportunities. The multi-year effort behind the EU’s sustainable finance framework has steadily built world-leading standards, guidance and toolkits that already direct private capital into more sustainable economic activity and help bridge the EU’s clean energy funding needs. 

The Omnibus package, as presented, will drastically reduce the scope of the sustainable finance framework in terms of which entities must carry out sustainability and taxonomy reporting and how carefully they need to examine supply chains. It will also delay reporting requirements and scrap planned standard setting. The resulting loss of actionable data and regulatory instability will diminish investor confidence and the credibility of clean energy financing at a time when industrial policy requires the opposite. The EU appears to be taking a significant risk to reduce compliance burden while ignoring the comparative benefits of commanding the world’s most comprehensive sustainable finance framework.  

Initial estimates put the cost of adhering to the Corporate Sustainability Due Diligence Directive, for example, at just 0.13% of shareholder distributions (in the case of publicly traded companies), yet the directive promises to affect genuine behavioural change. 

Sustainability and taxonomy reporting, the scope of which is defined under the Corporate Sustainability Reporting Directive (CSRD), is an invaluable tool for promoting transparency of transition strategies, planning and progress. Reported EU taxonomy-aligned investments reached nearly €250 billion in 2023, indicating the expansion of lower-carbon economic activity. Taxonomy-aligned investments have strong potential to grow if the EU focuses on expanding the taxonomy’s scope and improving its usability while maintaining a science-based technical standard. The recently launched European Green Bond Standard has seen early success, with issuances from corporate, private financial institution and municipal issuers. But the EU itself is not committed to adopting its own standard. This underscores the need for public institutions to step up and better utilise these tools to mobilise investments to support corporates in need. 

Taxonomy-aligned benchmarks could be key to overcoming obstacles associated with existing EU Climate Benchmarks, potentially unlocking transition alignment for trillions of euros in passive investor assets. A fact little discussed during this Omnibus process is that the Sustainable Finance Disclosure Regulation (SFDR) also relies on the foundations laid by CSRD and the taxonomy, the very pillars that the EU now seeks to dismantle. Impacts felt by SFDR will magnify any destabilising effect. 

The benefits of directing capital flows to sustainable economic activity will only grow, assuming the EU stays the course. If the EU wishes to build competitive advantage in the clean energy industries of tomorrow by attracting capital, the sustainable finance framework is its trump card. In IEEFA’s view, reducing ambition now as laid out in Omnibus proposals only undermines wider EU policy that aims to make Europe the first economic bloc to achieve carbon neutrality.