Gender-lens investments, EU Omnibus released, and power pricing reform in China

On 26 February, the European Commission (EC) introduced proposals to simplify EU regulations, enhance competitiveness, and unlock investment. If implemented, these changes could mobilize an additional EUR 50 billion and save around EUR 6.3 billion annually, according to the EC’s own estimates.

Key changes include:

• Removing approximately 80% of companies from CSRD’s scope, focusing reporting obligations on the largest companies;
• Postponing the CSRD reporting requirements by two years and the application of the CSDDD requirements for the largest companies by one year (both to start in 2028);
• Introducing a financial materiality threshold for Taxonomy reporting and 70% fewer data points;
• Exempting small importers from Carbon Border Adjustment Mechanism (CBAM) obligations, carving out about 90% of importers while still covering 99% of emissions.
  

The proposals will now be reviewed by the European Parliament and Council for approval. The Council is overall supportive of the simplification initiative, as is the largest party within the European Parliament. Nevertheless, a lot could still change between now and the final text that emerges from the European legislative process.

What it could mean for investors

The headline investment and savings figures promised by the package could be positive for EU competitiveness—if successfully implemented and executed across the EU.

In the meantime, regulatory uncertainty persists, especially for those businesses already advanced in their reporting preparations. As noted in our February SI Perspectives report, short-term uncertainty brings risk to low-carbon and ESG leader strategies if decreased sustainability disclosure from companies reshuffles, or reduces, investable universes.

Disclosure (Corporate Sustainability Reporting Directive, CSRD): We still believe clear and comparable disclosure of sustainability risks and opportunities can support investor decision-making, but not all data (and disclosure) is useful data for investors or a good use of companies' resources. Indeed, the adage “what gets measured gets managed” is often understood as supporting more measurement; however, the 1956 academic paper from which it originated, titled “Dysfunctional consequences of performance management,” cautioned against over-measurement. In this respect, simplification of requirements might be positive if reporting companies focus on a smaller set of financially material factors.

However, reducing the reporting scope to include only EU companies with > 1,000 employees or non-EU companies with EUR 450mn or more in EU-derived turnover could see a decrease in the number of EU-listed companies reporting on their sustainability credentials. Initial analysis suggests the impact on global benchmarks will be small.

Supply Chain Due Diligence (Corporate Sustainability Due Diligence Directive, CSDDD): In our view, the restriction of due diligence to first-tier suppliers, removal of civil liability, and increased thresholds may overly simplify supply chains, raising human rights concerns.

Carbon Pricing (Carbon Border Adjustment Mechanism, CBAM): Finally, the impact of the proposed reduction in CBAM scope will be highly dependent on its execution. On one hand, the changes could help trade discussions by reducing barriers. On the other, they could create loopholes that allow the CBAM to be circumvented.

Investor takeaways:

• The EU Sustainability Omnibus removes sustainability disclosure requirements for smaller European and foreign companies and simplifies required disclosure.
• The largest companies in the EU and major global indices will likely be required to report, and investors might see more disclosure focused on financially material topics.
• Proposed changes to supply chain due diligence rules significantly dilute the benefits of the regulation for transparency and identification of human-rights-related risks, in our view.
• All in all, evolving disclosure regimes will allow ESG leader companies to differentiate themselves from those meeting minimum requirements.

We continue to see risks ahead for China’s renewable energy sector. We favor longer-term investments into infrastructure, energy efficiency, and climate tech ventures.

Investor takeaways:

• China's approach to “all of the above” energy policy—coal and renewables expansion—recognizes decarbonization and energy reliability needs, but long-term over-supply risks loom.
• We continue to see long-term decarbonization as inevitable, but pathways will differ across regions. We recommend investors diversify across current and future technologies, which may be accessible via both public equities and alternative investment opportunities, including infrastructure and climate technology ventures.