Since early November, two announcements have emerged that are likely to set the tone for corporate sustainability and responsible investment for years to come.

First, at an 8 November press conference, European Commission President Ursula von der Leyen indicated that the EU would now take an ‘Omnibus’ approach to the three pillars of Europe’s Green Deal. In other words, choice parts of the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CS3D) and the Taxonomy Regulation would be merged into a single piece of legislation. The aim: to streamline the measures for affected stakeholders. 

Second, in a special New Year update, the Glasgow Financial Alliance for Net Zero (GFANZ) unveiled plans to restructure as a CEO-led, independent Principals Group. Since its launch at COP 26 in 2021, GFANZ has coordinated a voluntary transition framework for more than 500 signatories – all major financial institutions with $100tn of assets under management. Now, it will focus on addressing global barriers to the mobilisation of transition capital, with an emphasis on leveraging public-private partnerships.

The moves met with huge controversy. In a 14 January statement, the European Coalition for Corporate Justice, comprised of more than 160 civil society action groups, said that the Omnibus proposal “risks dismantling already approved critical EU laws” in a way that will “lower protection for people and the planet”. Meanwhile, ShareAction described GFANZ's decision “to walk back on a requirement to align with the Paris Agreement” as a "dangerous" one that would lead signatories to lower their ambition.

What do the announcements mean for the future of disclosure and, more broadly, the corporate net-zero mission?

Political risk

Tom Gosling, Professor in Practice at the London School of Economics and Political Science, and Executive Fellow at the European Corporate Governance Institute, is an expert in investor stewardship, corporate purpose and environmental matters. He finds the EU and GFANZ moves of significant interest.

Looking at the Omnibus proposal, Gosling points out that for some time within Europe’s investor and business community, there has been a groundswell for simplification. “There’s a widely held view that the EU disclosure regulations had gone too far in their prescriptiveness and data requirements,” he says. “Concerns have grown among organisations that they were putting lots of time and effort into developing ways to pass data around the system, and it’s not been entirely clear who’s using it, or for what.” 

In Gosling’s view, former Italian Prime Minister Mario Draghi’s recent Commission report The Future of European Competitiveness “adds grist to that mill”. However, he points out: “There’s a risk that various interest groups now see the Omnibus proposal as an opportunity to put a bomb under the whole agenda and it’s by no means certain that the Commission will be able to contain that.”

Meanwhile, Gosling notes, by contrast to the groundswell over the EU regulations, the disclosure framework set out by the International Sustainability Standards Board (ISSB) is “largely supported” among corporates and investors: “What I hear pretty uniformly is that it strikes just about the right balance between presenting useful information and being manageable from a compliance standpoint.”

For Gosling, the Omnibus proposal encapsulates a moment of high political risk for the EU. On one level, it has emerged at a time of rising economic stress in Europe, which is in part – “and perhaps to an unjustified degree” – being blamed on sustainability. 

On another level, the Commission will need to act quickly on the proposal to avoid a prolonged spell of legislative uncertainty. “It’s a fraught situation,” Gosling says. “But I suspect it’s most likely that the Commission will be able to preserve the basic infrastructure of the three regulations, while simplifying them to some degree.”

Gosling is also intrigued by the contrasts between the EU approach and that of the UK, with its outside-looking-in status. “First, we’re adopting ISSB, rather than the more complicated double-materiality inherent in CSRD. Second, we haven’t attempted to produce our own version of CS3D for due diligence. And third, we’ve taken a different approach to fund labelling – one that the EU is beginning to gravitate towards.”

Folding the ‘big tent’

Turning to GFANZ, Gosling sees its reinvention as an inevitable outcome of mounting pushback against investment ventures or alliances with an environmental, social and governance (ESG) ethos.

That backlash is particularly pronounced across the Atlantic. For example, in November 11 US States sued three major asset management firms over alleged ESG antitrust breaches. And at least one prominent law firm has already pondered whether GFANZ itself has been operating under an antitrust cloud.

“It’s negative weaponisation of ESG,” Gosling says. “For members of GFANZ and other alliances, even if the grounds of an antitrust case are weak, defending against it can be very costly – and there are devastating tail risks if you lose.”

Gosling explains that ESG financial alliances have always nursed tensions between big-tent crowd-building and high-ambition goals. At first, investment firms flocked to the ventures because they didn’t want to be left behind, and felt that it was commercially important to join forces under a campaigning, ESG banner – or, in GFANZ’s case, 1.5°C with no or limited overshoot. 

But in some cases the criteria were never particularly onerous anyway – for instance, an initiative might allow you to submit only part of your asset base to its targets. As such, some critics accused alliances of political overreach, while others sounded the alarm over greenwashing.

Some of those tensions, Gosling notes, were apparent in the case of Climate Action 100+ – an investor network that shifted towards pressing its members to urge their clients to implement carbon reduction measures. That top-down approach sparked concerns among members over potential conflicts with their fiduciary duty.

Gosling considers the current trend a net-negative: alliances made compelling focal points for the voices of transition-savvy investors, enabling them to counterbalance aggressive lobbying from business groups. However, he sees hopeful signs: “Many firms that have already left these networks say they won’t necessarily change what they’re doing – they’re just not going to do it through those institutions. Meanwhile, GFANZ has said it will focus on how financial institutions can channel their efforts into building a more effective system for delivering transition finance.”