As the clock ticks down to the launch of the new EU Corporate Sustainability Reporting Directive (CSRD), ESG expert Florian Wupperfeld says the regulations won’t benefit citizens and communities, but line the pockets of large international consultancy firms instead.
The CSRD regulation, enforced by the EU from 1 January 2025, requires all large companies to undertake non-financial reporting on sustainability.
50,000 companies will fall within the scope of the CSRD, including over 10,000 non-EU companies who qualify by generating over €150 million in the EU market. Of the non-EU qualifying companies, North America and the UK will be most affected, with 31% American, 13% Canadian and 11% British.
The EU has introduced the directive to help consumers and investors assess the impact of these companies on people and the environment and to encourage initiatives which are beneficial to the public.
However, Florian has criticised the regulations, saying they won’t benefit people and communities, but instead create “a pointless middleman lining his pockets and profiteering from sustainability targets”, as the regulations are “little more than a ‘tick box’ exercise”.
Wupperfeld is CEO of LCD Ventures, a UK urban innovation company offering data-driven placemaking services and socially sustainable solutions. He has advised some of the world’s top destinations, recognisable brands and real estate developers to develop global cultural and social sustainability placemaking strategies and innovations, including the City of Amsterdam, Berlin, Malta, Soho House, Tate London, Pinebridge and Brookfield.
Of the new CSRD regulations, he says, “Conceptionally, citizens, employees, suppliers, workers should benefit. But since this scheme is so untransparent, it will only line the pockets of shareholders of big corporates including consultancy firms who will jump on an opportunity to sell glossy brochures with emotional pictures at hundreds of thousands of euros.
“It will certainly not benefit creative, sports or educational infrastructure for the local community.
“People talk about Greenwashing – we are now about to enter a period of ‘Social Smoothing.’”
Wupperfeld argues that the European Commission’s new regulations are providing consultancies with a “golden opportunity to get paid for doing nothing of any particular value”, securing high-paying contracts to provide companies with positive ESG ratings rather than delivering any real impact.
He says that it’s often the case that “good social impact” does not result in a good social rating and that the system has been set up without the proper knowledge and accountability infrastructure. Wupperfeld proposes that an incentives-based, data-led system would deliver more for social sustainability.
“As a new scheme, lots of parameters are not sufficiently defined, and impact and rating are not aligned. Add to this a general lack of transparency prevailing in the social and environmental ratings markets and you get a lot of large companies viewing this as another ‘rubber stamp’ tax without a proper plan or philosophy behind it. This is very likely to create a lack of accountability, which is unlikely to deliver any real and lasting social sustainability.”
Wupperfeld added, “What is needed is a system encouraging companies to switch to a more sustainable economy. Instead of presenting an issue that they need to solve, the EU could present incentives in exchange for companies contributing capital to meet societal ESG needs.
“Then CSRD could have a transformative impact. It would encourage companies to connect with local councils, consider their needs, and create, build or run football pitches, museums, libraries and other facilities to boost social and cultural sustainability.”
“But for this to happen, cities and local authorities, who know what’s needed and lacking in their cities, have to set the agenda and communicate what they need, rather than the private sector. They also need to be able to present actionable data to de-risk social impact investments for big companies.
“I believe if they would measure the impact and deliver data in exchange for investment, that will be the way forward to unlocking the full potential of ‘S’ in ESG and triggering mass innovation in the public sector.”
As the CSRD nears implementation, European regulators have demonstrated a deliberate approach in rolling out these standards, signalling that the requirements are here to stay. January 1 2025 will mark the beginning of obligatory reporting for many companies – ensuring readiness will be key to navigating this new landscape of mandatory environmental, social, and governance disclosures.
