EU Investors Warn Against Cutting Key Sustainability Data in Regulatory Review Amid US Trade Tensions
The European Commission's review of sustainability disclosure regulations has prompted concerns from investor groups, including the European Fund and Asset Management Association (EFAMA), about proposed reductions in mandatory data reporting. EFAMA warns that cutting key sustainability data could hinder investors' ability to assess risks and support EU climate goals. The review aims to ease regulatory burdens amid EU-U.S. trade tensions. EFAMA suggests a streamlined data list to reduce reporting by 80% without compromising quality. The Commission's consultation on these changes is open until May 30, 2025, with draft revisions expected later in the year.
Investor Groups Push Back on Data Cuts
The European Commission’s ongoing review of the Sustainable Finance Disclosure Regulation (SFDR) and related corporate reporting rules has triggered a wave of feedback from the investment community. EFAMA, the region’s main asset management trade body, has expressed support for reducing unnecessary complexity in sustainability reporting. However, it cautioned that any simplification must not come at the cost of essential data that investors rely on to evaluate environmental, social, and governance (ESG) risks.
“The political drive to reduce EU sustainability regulations should not result in investors losing valuable information about material risks, or forcing them to rely on third-party data providers more often,” EFAMA said in a statement on May 9. The group emphasized that transparency is critical for informed investment decisions and for channeling capital into sustainable economic activities.
Ilia Békou, policy adviser at EFAMA, acknowledged that simplifying disclosure requirements could enhance EU competitiveness by fostering innovation and growth in key technological sectors. However, he stressed that this must be balanced with the need to maintain robust sustainability data frameworks.
Proposed Regulatory Changes
In February 2025, the European Commission proposed a series of amendments to the corporate sustainability reporting framework. These include exempting thousands of smaller European companies from mandatory ESG disclosures and reducing the obligations on larger firms to monitor their supply chains for environmental and human rights violations.
The Commission’s rationale is to alleviate compliance burdens that may be hindering European firms’ ability to compete globally, particularly in light of a growing tariff dispute with the United States. The U.S. has imposed new tariffs on EU goods, prompting the Commission to consider retaliatory measures, including potential trade restrictions on American imports.
The Commission has also launched a formal call for evidence on revisions to the SFDR, which has been in effect since March 2021. The consultation, open until May 30, 2025, seeks stakeholder input on how to streamline the regulation while preserving its core objectives. A draft revision is expected in the fourth quarter of 2025.
EFAMA’s Alternative Proposal
In response to the Commission’s review, EFAMA has put forward its own proposal aimed at reducing the reporting burden without compromising data quality. The association is preparing a streamlined list of data points that companies could report, which it estimates would cut reporting requirements by 80%. This core set of disclosures could be supplemented with voluntary information, allowing flexibility while maintaining transparency.
EFAMA also warned against narrowing the scope of companies subject to the regulations. Reducing the number of covered entities, particularly smaller green enterprises, could make it more difficult for investors to identify and support emerging sustainable businesses. “Excessively reducing the number of green companies covered by the regulation could hinder capital flows to smaller enterprises that are vital to the EU’s green transition,” the group stated.
Broader Context: Trade Tensions and Regulatory Alignment
The regulatory review is unfolding against a backdrop of intensifying trade tensions between the EU and the United States. In early 2025, the U.S. announced new tariffs on EU steel, aluminum, and other goods under Section 232 of the Trade Expansion Act. In response, the European Commission initiated a consultation on potential countermeasures, including reciprocal tariffs on U.S. imports. These developments have added urgency to the Commission’s efforts to boost the global competitiveness of European firms.
Investor groups are also calling for greater alignment between EU sustainability standards and global frameworks. Norges Bank Investment Management (NBIM), which manages the world’s largest sovereign wealth fund, has urged the EU to harmonize its ESG reporting rules with those of the International Sustainability Standards Board (ISSB). NBIM criticized the current European Sustainability Reporting Standards (ESRS) as overly complex and duplicative, arguing that they risk overwhelming investors with low-value data.
“There is significant scope for streamlining disclosure requirements while maintaining a high standard of reporting,” NBIM said in its response to the European Financial Reporting Advisory Group (EFRAG) consultation. The fund proposed a three-pronged plan to reduce red tape, eliminate duplication, and align terminology and metrics with global standards.
Calls for Coordination with Asset Manager Reporting
EFAMA and other stakeholders have also emphasized the need to coordinate the corporate disclosure review with upcoming changes to sustainability reporting requirements for asset managers. Ensuring consistency across the regulatory framework is seen as essential to avoid fragmentation and inefficiencies in ESG data collection and usage.
The European Commission has acknowledged these concerns and is expected to consider them as part of its broader regulatory overhaul. Feedback from the current consultation will inform the draft revisions to the SFDR, which are scheduled for adoption later this year.
