What will be left of the CSRD after it goes through the European mill? The Corporate Sustainability Reporting Directive, one of the cornerstones of the European Green Deal, is being rediscussed as part of the Omnibus simplification project. The obligations for companies that have not yet started to implement them. French engineer and consultant Jean-Marc Jancovici spoke to Paperjam on the subject.
Paperjam: What do you think of the proposed simplification of the CSRD?
Jean-Marc Jancovici: It doesn’t inspire me much at the moment… there’s simplification and then there’s simplification. It will all depend on the details. It’s understandable that we’re easing certain obligations for SMEs. Asking them to produce 1,200 data points was unrealistic. I think we went a bit too far with the first version. It’s not shocking to want to lighten certain things, but you have to be careful not to oversimplify; otherwise the exercise becomes pointless. We mustn’t throw the baby out with the bathwater.
What, in your opinion, should definitely not change?
I hope that the climate and biodiversity part will not be weakened for the companies that are subject to it. These are crucial issues. As for the rest, I don’t have an opinion because it’s outside my area of expertise.
We can adapt the requirements according to the size of the company, or even increase the threshold because the smallest companies will end up following suit. Similarly, I have no problem with giving smaller companies a little more time. But changing the environmental indicators themselves for companies subject to the obligation would be much more problematic.
So for you, the priority should be to make the thresholds and deadlines more flexible?
If we want to “simplify” the directive, such measures would not harm the spirit of the directive. And then, in practice, as soon as the big companies apply these rules, the smaller ones will in any case be trained to follow. This will happen naturally, through the customer-supplier relationship. So it’s better to give them a bit of time to adapt, rather than trying to impose everything at once.
How far should the CSRD’s transition plans go in terms of obligations to provide resources?
A company should not draw up a transition plan just because it’s a regulatory obligation. They should do it because they understand that the transition is going to happen, whether they like it or not. And that’s a fundamental element that many people are missing in the current discussions around the CSRD.
Europe imports 97% of its oil and 90% of its gas. Conventional oil production peaked in 2008, and total crude production (all categories combined) peaked in 2018. In other words, companies need to ask themselves a simple question: can they really avoid a reduction in fossil supplies? The answer is no. It’s not a possibility, it’s a certainty.
So when we talk about a “transition plan,” for me it’s first and foremost a resilience or safeguard plan. It should not be seen primarily as a cosmetic exercise designed to please Brussels. Doing it seriously means securing our future.
Europe needs to chart its own course, not ape a model that doesn’t suit it.
Simplifying obligations also means potentially less data… and therefore less transparency?
“It’s possible, but it has to be put into perspective. When investors want transparency, they are mainly interested in the large companies in which they invest. If Carbone 4, for example, doesn’t publish its CSRD roadmap, the markets don’t care. On the other hand, if Total, Arcelor, Holcim or Engie fail to do so, that becomes a problem. And the big listed companies are already applying the CSRD.
Who has the most to lose from this simplification?
Intelligent simplification, i.e. threshold adjustments and slightly shifted timetables, doesn’t really create any losers. But if, under the guise of simplification, we start cutting back on essential information, then the whole economy will suffer.
The CSRD is like an insurance premium. Nobody wants to pay it, but the day you have a claim, you’re very glad you paid. It’s the same thing here. The effort you don’t want to make now is preparing you for a world you didn’t choose. But that world is coming anyway. And the later you prepare for it, the more painful it will be.
At European level, the current trend is towards deregulation and even chainsaw attacks.
That would be a mistake. We must understand one essential thing: Europe is not the United States. Today, the United States is virtually self-sufficient in oil and gas. They also have vast mineral resources and a lot of space. So for some time to come they will be able to ignore the physical limits of the world. I don’t know how long that will last, but they have that margin.
Europe, on the other hand, is in a situation of massive dependence. It imports 97% of its oil, 90% of its gas, half its coal, 80% of its copper and even 90% of its solar panels. We are totally dependent on external resources. Forcing European companies to recognise their dependence on the environment is not a luxury. It is a vital necessity, whether for resources or emissions.
I see large multinationals still hoping to model their operations on the American model. But this dream of mimicry is becoming less and less relevant for the European economy as a whole. Europe needs to chart its own course, not ape a model that doesn’t suit it.
Some major companies such as Ferrero have already integrated the CSRD requirements and have no desire to turn back.
Absolutely. And on a broader level, it’s important to remember that there is a growing societal demand for these issues. A large part of the population is sensitive to this.
Even before the regulations existed, some companies were committed to the climate or biodiversity to attract and retain their managers. This remains a very important factor. And this momentum is not going to die down overnight.
What the taxonomy penalises is precisely the transformation projects within “unclean” sectors.
Do you fear that the von der Leyen commission’s Green Deal will end up in the dustbin?
I think the Green Deal is a very good idea. It is true that there were some teething problems, but correcting these mistakes does not mean giving up on the whole thing. The reasons that led to its introduction are still there. We absolutely must decarbonise our economies. And not just for climate reasons: it’s also a question of energy sovereignty and geopolitical resilience.
The longer we delay, the more it costs, the more effort it requires and the less successful it becomes. The economy loves anticipation. When we act in a hurry--because of Russian gas, American liquefied natural gas deliveries or an oil crisis--we suffer, we no longer choose. And that’s where it becomes dangerous.
The simplification exercise also concerns the European green taxonomy. What are your expectations in this area?
To be honest, I’ve always had much more reservations about the value of the taxonomy than the CSRD. I think the original idea--to classify economic activities as “good” or “bad” for the environment--is really naive.
Why?
Because the economic reality is infinitely more nuanced than the taxonomy suggests. For example, furniture manufacturers are not included in the taxonomy. Yet there is a world of difference between a small manufacturer of wooden beds who uses a sawmill fed by wood waste, and a giant like Ikea whose shops are only accessible by car and whose products are mostly made of metal or chipboard derived from petrochemicals. The taxonomy makes no distinction between these two cases. It completely ignores details like that. This is the first problem.
As another example, consider a coal-fired power station that is considering converting to a cleaner technology, such as combined heat and power (CHP). According to the taxonomy, coal is automatically excluded. So this project--which would nevertheless reduce emissions--would not be considered a green investment. This is debatable. What the taxonomy penalises is precisely the transformation projects within “unclean” sectors.
So you question the real effectiveness of the taxonomy in promoting the transition?
Yes, because the taxonomy, in reality, favours sectors that are already “derisked,” i.e. already within the regulatory bounds. If you invest in wind power today, you are investing in a sector that has been validated and is safe. But if you buy shares in a wind energy developer on the secondary market, you have no real impact on global emissions. These shares already exist, they just move from one portfolio to another. And the taxonomy favours investments that give rise to new projects equally with those that just change hands.
Inversely, if you invest in a company that emits a lot with the aim of making it cleaner, then you create a real impact. But the taxonomy doesn’t reward that. It doesn’t value all transition trajectories.
What do you think would be a more relevant definition of what a green investment is?
It’s very simple: a climate-relevant project is one whose post-investment emissions are lower than its pre-investment emissions. Full stop. Nothing more, nothing less.
But this definition did not suit the financial players at all. Why was that? Because each project has to be analysed separately, with emissions calculated before and after each project. This requires experts (like Carbone 4!) So it takes time and costs money. The financiers preferred a very simple taxonomy, a tick-the-box tool that could be completed by a trainee or by software, easy to standardise, but which does not reflect the reality of the impacts. As a result, we now have a tool that is of little operational use. It does not always guide the money towards the projects that are most useful for the transition.
Should we then abandon the European taxonomy?
Not necessarily. Unravelling it would send out a more negative political signal than we would gain in terms of substance. At this stage, the best thing might simply be to forget about it gently, and gradually replace it with a more relevant system.
What I am advocating is a logic of analysis at the level of the project or investment, and no longer at the level of the sector. We need to look at each case individually: will this project generate fewer emissions afterwards than before? That’s the real criterion.
Carbon 4 applies a case-by-case approach?
Absolutely. In our Carbon Impact Analytics method, developed by Carbone 4 for the financial sector, we do not use the European taxonomy to judge whether or not a company is contributing to the transition. Because there is good and bad in every sector. The taxonomy is too rigid. We prefer to look at the hard data, the real trend in emissions, the decarbonisation trajectories. What counts is not being on the “right side” of a list, but committing to a credible transformation dynamic.
Carbone 4, the consultancy co-founded by Jean-Marc Jancovici, has just set foot in Luxembourg. What is its strategy? Read the interview in the May issue of Paperjam magazine, on newsstands from 24 April 2024.
This article in French.