Internal backlash saved EU green finance rules from extinction

ANTWERP, Belgium — Only a rearguard weekend fight by senior European Commission officials prevented the rollback of major green finance rules this week, documents seen by POLITICO show, highlighting bubbling tensions over Brussels’ drive to weaken EU environmental laws.

On Wednesday, the Commission presented a sweeping policy package responding to industry concerns that high energy prices and proliferating green reporting obligations were hampering their ability to compete with China and the United States. 

The slate of proposals includes significant cuts to recently passed green legislation, exempting most of the EU’s companies from reporting on their environmental impact and climate risk exposure, and on whether their activities align with the bloc’s sustainability criteria. Climate campaigners and many lawmakers swiftly decried the decision. 

But until a few days ago, the EU executive was planning even more severe rollbacks. Drafts circulated within the Commission on Friday show that Brussels wanted to render its green finance classification entirely voluntary and weaken related sustainability standards. 

The drafts sparked a backlash from some EU commissioners, two Commission officials with knowledge of the discussions told POLITICO, eventually resulting in the milder revisions that were published on Wednesday. 

“What we wanted to do is simplify in such a way that we reach our [climate] goals … without undoing what we’ve done in the previous mandate,” Teresa Ribera, the Commission’s climate and competition chief, told reporters at an industry conference in Antwerp Wednesday afternoon. 

Without identifying anyone in particular, she acknowledged: “It was also true that of course, there were some that would have liked to get rid of absolutely everything and go even faster” in scrapping green rules applying to companies. 

Behind closed doors, officials were more frank. 

“There was a huge fight over the weekend,” said one of the officials, granted anonymity to disclose details of internal discussions. “It was exhausting, but we got the most balanced version possible.” 

Significant harm 

The 11th-hour spat reveals a growing divide within Brussels over how far the EU should go in yielding to industry’s demands to strip back green rules after Commission President Ursula von der Leyen made slashing red tape a core promise of her second term.

Von der Leyen’s top targets were two regulations holding companies accountable for environmental damage across their supply chains as well as the EU Taxonomy, a classification system underpinning the bloc’s green finance rules. A slate of proposals unveiled Wednesday makes significant changes to these three laws.

But in Friday’s drafts for proposals to streamline those regulations, “the entire Taxonomy reporting tool would have been voluntary, and even the fundamental ‘do no significant harm’ principle was questioned,” the official said. That was a no-go for some commissioners. 

The EU Taxonomy determines which economic activities can be considered green. The point of the law is to redirect investments toward environmentally-friendly companies by getting them to report on how they meet the EU’s specific definition of “sustainable.”  

That includes the “do no significant harm” principle, which states that their activities should not contravene the EU’s six environmental objectives such as reducing planet-warming emissions. 

According to the drafts, the Commission tried to drastically water down that principle so that some companies’ activities could still count as “sustainable” — and thus receive capital from sustainable finance funds — “even when they cause harm to one of the other objectives, provided that the harm caused is not significant.”

On Wednesday, the Commission confirmed it would be making such a change, but only for one of the six objectives, pollution prevention. 

The Commission also wanted to make compliance with the Taxonomy voluntary for all companies, including financial market participants like banks, citing cost concerns for mandatory reporting. 

“The proposal aims to introduce an opt-in regime for Taxonomy reporting to reduce administrative and financial burdens on undertakings while maintaining transparency and promoting sustainable investments,” the draft read. “The opt-in regime also applies to financial market participants in relation to their product level Taxonomy disclosures.”

In the proposal published Wednesday, the number of companies that are required to report under the Taxonomy has been reduced by 85 percent. 

The Taxonomy fight was not the only debate. As POLITICO reported, commissioners last week also argued over a rule forcing companies to measure and report the environmental damage they cause, with two officials saying that initial drafts had scrapped those obligations. 

The Commission did not immediately respond to a request for comment on Wednesday.

Centrist split 

The fight inside the Commission is likely to carry over into the European Parliament, potentially igniting one of Europe’s most sensitive political issues: the taboo on using far-right votes to pass legislation. 

Last year, von der Leyen relied on votes from parties across the center in the Parliament to win a second term. But on Wednesday, parliamentarians from across that centrist coalition — except her own center-right European Peoples’ Party (EPP) — lined up against the proposals to water down regulations.

“This does nothing to actually improve companies’ competitiveness; the only apparent goal is the blind scrapping of regulations,” said the Greens’ Bas Eickhout. 

“​​These proposals are crude and badly thought-out, risking actually creating bureaucracy and uncertainty,” said Socialist MEP Lara Wolters.

Even the centrist group Renew, which has presented itself as a bridge-builder, was giving the corporate reporting revisions short shrift. “These seem to be tailor-made proposals for German companies,” said French MEP Pascal Canfin.

That leaves the Commission with two choices to pass its legislation. Either it slogs through protracted negotiations with the centrist parties, or it uses what French far-right leader Jordan Bardella calls the parliament’s “alternative majority” — the EPP joined with hard-right conservatives, nationalists and neo-fascist parties.

Speaking to POLITICO earlier in February, Canfin said using that ring-wing majority to pass the first legislative proposal of von der Leyen’s second term would put the Commission and the Parliament into uncharted territory. After decades of centrist consensus-building, Canfin said, it would mean “they have opened Pandora’s box.”

In Antwerp, EU Climate Commissioner Wopke Hoekstra, an EPP politician, said he was “confident” the reforms would win a centrist majority. 

But Ribera, a Spanish Socialist, appeared to issue a warning to von der Leyen when asked about her own political family’s criticism of the rollbacks. 

“We are counting on the different political families that are convinced of the importance of building the European dream together to remain united, not only in identifying the challenges but also in providing solutions,” she told reporters in Antwerp. 

“There may be one political family … that has a bigger say in the parliamentary landscape, but there are many others,” she added. “And it would be a big mistake not to take into account this plurality.” 

Leonie Cater contributed reporting.