There is currently no relief in sight in the Ukraine crisis. Yesterday, the USA declared that it would send troops to Poland, Romania, and a smaller contingent to Germany. About 1000 soldiers are to be transferred from Vilseck near Nuremberg to Romania, in return for which 300 soldiers previously stationed in the USA will come to Middle Franconia. Another 1700 are to be sent to Poland. Ministry spokesman John Kirby spoke of an “unmistakable signal” to Vladimir Putin that “NATO is important to the USA and our allies”. From Moscow, on the other hand, Boris Johnson and members of his government received unfriendly remarks. De-escalation and diplomacy, as Emmanuel Macron and Putin presented it only a few days ago, look different.
Brussels was also on edge yesterday when Finance Commissioner Mairead McGuinness presented the final Commission proposal for the second delegated act on the EU taxonomy. In the past weeks, the authority had to face criticism from all sides for its preliminary draft to supplement the EU taxonomy. Nevertheless, the Brussels authority stuck to its plans to include natural gas and nuclear energy in the set of rules for sustainable financial transactions and to classify them as “green” under certain conditions.
Only minor adjustments had been announced by the responsible parties. For example, the regulations for gas-fired power plants were further relaxed compared to the previously hotly debated draft. Much to the delight of industry. Environmentalists, on the other hand, are up in arms. Whether the controversial plan can be overturned before it comes into force remains doubtful. Timo Landenberger and Charlotte Wirth have summed up the reactions.
For decades, experts from industry and research have been negotiating technical specifications and procedures in Europe’s standardization bodies, away from the public eye and largely untroubled by politics. The EU Commission wants to change that: Governments, industry, and experts should sit down at the same table and prevent Europe from losing more ground to China or the USA. After all, what was long a playground for nerds has now become a playing field for major geopolitics. Till Hoppe analyzes the goal the Commission is pursuing with its new standardization strategy.
EU Finance Commissioner Mairead McGuinness spoke of an “important step towards a climate-neutral economy”. On Wednesday, the European Commission officially presented its delegated act on the so-called taxonomy, in which nuclear energy and natural gas were still classified as sustainable transition solutions under certain conditions. The draft called them a “key evolution of the financial sector towards sustainability,” helping the EU meet its ambitious climate goals.
In recent weeks, however, there had been criticism of the project from many sides. The scientists of the Platform for Sustainable Finance, an expert group of the Commission that was originally entrusted with the development of the taxonomy criteria, had also demanded significant improvements. However, the Brussels-based authority only complied with these demands in small parts.
For gas-fired power plants, the experts had called for the limits of 270 grams of CO2 per kWh or a maximum of 550 kg of CO2 per year to be tightened significantly. The Commission did not follow this call. Instead, the regulations were even relaxed and the interim targets for blending lower-CO2 gases were removed. The only requirement that remained was that gas-fired power plants should perform a so-called fuel switch to renewable or low-CO2 gasses by 2035.
The platform also criticized the sustainability label for nuclear power. It called the criteria too lax, especially for radioactive waste storage, an issue that remains unsolved. Nevertheless, the Commission has only somewhat clarified the provisions for the plans for underground geological repositories, which the member states must submit.
The problem of permanent storage must be addressed, McGuinness said. And that’s exactly what the proposal would provide. “We’re focused on making sure there’s a waste plan. That’s a step forward. The industry needs to be fully responsible for disposal.” Here, the commissioner stressed the importance of a review clause. The criteria would be reviewed every three years and revised if necessary. Then, significant progress would be taken into account for all technologies, including safety solutions.
“And we know we need to move away from particularly harmful energy sources like coal, which today still accounts for 15 percent of electricity production in Europe. […] Today we are setting out how gas and nuclear could make a contribution in the difficult transition to climate neutrality,” McGuinness said. The proposed legislation would even promote improvements in technologies that are essential for the transition. It is not a matter of painting them green, but of recognizing their importance as bridging technologies.
The commissioner admitted “that overall, that feedback we received showed that positions are widely divided”, but she believes that they “have found a balance between fundamentally different opinions in supporting the road to decarbonization.” The Commission had voted on the act – “with overwhelming support,” McGuinness said.
For Luxembourg’s Energy Minister Claude Turmes, the legislation as adopted by the Commission yesterday is “even worse than the previous draft.” So it is even more urgent to reject it. The Green politician also sharply criticized the way the rulebook came about: “I’ve never seen a law being changed via secondary legislation,” he told Europe.Table.
Turmes accuses the Brussels authority of “clear abuse of power.” “If the Commission now acts like this in other areas as well, then we are no longer in a democracy in which small countries still have a chance to have a democratic say,” he said. Together with Austria, Luxembourg would therefore file a lawsuit against the legal act before the ECJ.
German Federal Economics Minister Robert Habeck and Environment Minister Steffi Lemke (both Greens) also reiterated their opposition yesterday. “We have repeatedly made it clear that we consider the inclusion of nuclear energy in the taxonomy to be wrong. The whole thing thwarts the good concept of the taxonomy and runs counter to its goals,” Habeck said. The German government would now discuss how to deal with the EU Commission’s decision. The minister had already made it clear that Germany should reject the legislation if it remained unchanged on key points. Habeck: “We do not see the changes that are important for us.”
Andreas Golthau, an energy expert at the Institute for Transformative Sustainability Research, calls the inclusion of natural gas and nuclear energy “insanity” and also objects to the classification as a bridge technology: “If this is supposed to be a bridge, it’s a pretty short one. We have strong gas demand until 2030, but after that, it goes down very quickly. So we’re talking about eight to ten years. That’s not a bridge. It’s a hop, a skip at most,” the political scientist said. He added, referring to the long construction time for nuclear power plants, “If we’re serious about the climate targets for 2030 and 2055, we can’t hope for technologies that will be available in 15 to 20 years.”
The German industry, on the other hand, welcomes the Commission’s proposal, especially the adjustments to the gas sector. “With a cloud of interim targets like in the draft, the Commission would have slowed down the transformation more than accelerate it,” says VCI CEO Wolfgang Große Entrup.
The German Association of the Energy and Water Industries (BDEW) also welcomes the removal of intermediate steps. However, the requirements here are still very ambitious, especially the complete fuel switch to renewable and decarbonized gases as fuel by the end of 2035. “The right political framework conditions on the part of the EU and at the national level are now crucial. For example, the expansion of renewable energies and thus the production of renewable hydrogen is a mandatory prerequisite,” says BDEW Managing Director Kerstin Andreae.
Markus Pieper, energy policy spokesman for the CDU/CSU in the EU Parliament, is also confident. “The gas assessment helps the energy transition and energy prices in Germany. It will also make it attractive for private investors to get involved in new gas-fired power plants. The switch to hydrogen is given a realistic perspective.”
In addition, the taxonomy “adequately takes the energy history of the states that rely on nuclear power into account. Its clear safety and technology requirements should now prevent Germany and Austria from interfering in the concerns of Finland or France,” Pieper said, referring to the governments’ opposition to including nuclear power in the regulatory framework.
For Joachim Schuster, financial policy spokesman for the SPD MEPs, the EU Commission has missed an important opportunity with the adoption of the legal act. Clear criteria that can be used to assess which investments are sustainable and which are not would be of great value for implementing the climate protection measures of the Green Deal. “But this can only be done on the basis of scientific findings and not through lazy political compromises,” the MP added.
The politician now sees a risk for public financing projects as well: “Once you regulate this on the capital markets, it naturally becomes a yardstick for EU spending itself,” says Schuster. “Whenever sustainable projects are to be involved, a definition is needed. And it makes no sense to then define sustainability differently than we do now. This only brings us a permanent dispute.”
However, it is unlikely that the Commission’s plan can be stopped now. This would require a qualified majority of 20 of the 27 member states in the Council. In Parliament, 353 of the 705 members would have to vote against it. The Greens, S&D, and the Left have already announced their opposition if the legislation is passed in this form. Together they have 260 votes. The Christian Democrats could tip the scales, because the EPP Group is divided on this issue. While Markus Pieper is in favor of “clear approval,” Peter Liese, environmental spokesman for the CDU/CSU, has recently voiced clear criticism and announced that it would probably be best to “scrap the legal act altogether.”
The Parliament and Council now have four months to review the delegated act and lodge an objection if necessary. The EU Commission currently expects the delegated act on taxonomy to come into force on January 1, 2023. In collaboration with Charlotte Wirth
For decades, experts from industry and research have been negotiating technical specifications and procedures in Europe’s standardization bodies, away from the public eye and largely unbothered by politics. The EU Commission now wants to change that: Politics and industry in Europe are to address the issue at a high level.
Technical standards are of strategic importance, Industry Commissioner Thierry Breton said at the launch of the new standardization strategy. “Europe’s technological sovereignty, ability to reduce dependencies, and protection of EU values will depend on our ability to set standards worldwide.”
Above all, the rapidly growing influence of China, but also of the USA, in this traditional domain of Europe has startled politicians and industry. “European standardization is moving in an increasingly competitive global context,” the Commission writes in its strategy. In critical technologies such as lithium batteries or facial recognition, other countries have taken the lead in international standardization bodies. But their solutions are often incompatible with European values and priorities. Moreover, they give their companies competitive advantages in international markets.
Europe must therefore become more agile in the field and identify future standardization needs at an early stage, argues the Commission (Europe.Table reported). To this end, it is proposing a new high-level forum to identify priorities and ensure the representation of European interests in international bodies such as the International Organization for Standardization (ISO) or the International Electrotechnical Commission (IEC). The forum is to bring together high-level representatives of the member states, national and European standards organizations, and industry and civil society. The forum, which meets annually, is to be underpinned by topic-specific subgroups and cooperate with the European industrial alliances for batteries or green hydrogen, for example.
According to Sibylle Gabler, Head of Government Relations at the German Institute for Standardization (DIN), this construct is based on the Commission’s attempt to link the management levels in business and politics with the level of technical experts. It would be worth a try, “because the management issue of standardization is often not on the minds of the management.”
At the working level, the Commission intends to create a new “Excellence Hub” to pool expertise from the authority’s various directorates general and EU agencies. The experts are to anticipate technological trends at an early stage and initiate new standardization processes. The hub is to be headed by a Chief Standardization Officer.
In its new work program for 2022, the Commission has already identified six areas where new specifications are to be developed under high pressure. These include standards for vaccines and medicines against COVID-19, for the recycling of critical raw materials, for the use of green hydrogen, for low-CO2 cement, and for the certification of semiconductors and the exchange of data. The European standardization organizations CEN, CENELEC, and ETSI are now to prioritize these areas in their work.
The three organizations are also to undergo transformation. This applies above all to ETSI (European Telecommunications Standards Institute). The Commission is concerned that non-European groups such as Huawei have too much weight there: “Some multinational companies have more voices there than the organizations representing the entire stakeholder community,” the strategy states.
To push back the influence, the Commission wants to supplement the EU standardization regulation: the national standardization organizations are to be involved in the formulation of so-called harmonized standards commissioned by the Commission for the implementation of EU law. This involvement is already common practice at CEN and CENELEC, but not at ETSI. At DIN and Co, large foreign companies have less weight.
In addition, the Commission wants to shorten the duration of the standardization process through a series of measures. However, Andreas Schwab (CDU/EPP), spokesman for the EPP Group on internal market policy, also sees the authority itself as being responsible: it is dragging out the process unnecessarily “by publishing finished standards in the Official Journal often only after a long delay”.
But there is little dispute that action is needed. “With great concern” German industry is following the targeted international spread of state-driven, national technology standards from China, said BDI President Siegfried Russwurm. This creates the risk of fragmentation of technical market access conditions and a decline in demand for German and European technologies.
DIN CEO Christoph Winterhalter praises the Commission’s approach: ” China’s very strategic approach to standardization requires a joint identification and prioritization of Europe’s strategic key technologies,” he told Europe.Table.
Wolfgang Weber, Managing Director of the German Electronic and Digital Manufacturers Association (ZVEI), emphasizes that European positions must be increasingly reflected in international standards. Otherwise, there is a danger of being left behind in future technologies. The introduction of a high-level forum sets the course here “to intensify the interaction between industry, politics and the standardization organizations”.
In 2021, Alphabet (Google’s parent), Amazon, Apple, Meta (Facebook’s new alias), and Microsoft were among the world’s largest companies in terms of revenue and profit. These five companies alone increased their market capitalization by an amount greater than Italy’s GDP ($2.5 trillion vs. $2.1 trillion). Big Tech now accounts for nearly a quarter of the S&P 500’s index and a quarter of research and development spending by US publicly listed non-financial firms. Amazon is the world’s fifth-largest employer, and it is still growing.
What can be done about these firms’ growing market dominance? For starters, the situation demands a more proactive regulatory agenda, so that public authorities are not constantly playing catch-up. What we have now is a case-by-case regulatory “war of attrition,” frequently waged by litigation against past business practices. After a lengthy appeals process, the result almost always amounts to “too little, too late.”
The problem is exacerbated by a lack of disaggregated financial disclosures from the Big Tech companies. Their aggregated disclosures no longer come close to explaining how they operate. Investors and regulators need to know more. How many people use WhatsApp each month, and for how many hours? What is the Apple App Store’s profit margin? What is Microsoft Azure’s share of the cloud computing market?
Yes, sometimes one can find approximate answers to such questions on Google Search, but only when they have been revealed by a company whistleblower, an unredacted court document, or a private estimate from a website traffic company. The answers certainly cannot be found in Big Tech’s public 10-Ks, the annual financial performance reports that all US publicly listed companies must file with the Securities and Exchange Commission.
These omissions follow from two features of Big Tech’s powerful platform business model. First, a platform’s utility is often underpinned by “free” or subsidized products that drive user adoption. Even though these products are eventually monetized – either indirectly through advertising or directly through subscriptions, sales, and fees – they do not have to be included in the 10-K as long as they remain largely “free” to the consumer.
Consider Alphabet, which owns at least nine products – including YouTube, Android, Chrome, Gmail, and Google Maps – that have more than one billion active monthly users. Although each product dominates the global market in its sector, Alphabet’s 10-K financial disclosures list only an aggregate “advertising” category and a few limited financial metrics for YouTube and Google Cloud. This opacity has helped the company avoid regulatory scrutiny while establishing a global foothold in key digital markets.
While Big Tech firms sometimes provide monthly active user counts in their earnings calls to investors, these figures are not disclosed systematically in their annual 10-Ks, where the legal onus is higher. A proper disclosure of user “operating metrics” is sorely needed, because these firms’ market domination (and related abuses of power) is increasingly of a non-price nature. Central to this dominance is a large user base.
A large user base in one product, such as MS Word, can allow a firm to extend its dominance to other markets through bundling (think of MS Teams). Big Tech companies’ market power increasingly lies in the “ecosystems” they control, rather than in a single product. That power allows them to lock in users, squeeze out competitors, and build data fortresses.
The second feature of Big Tech’s business model that aids financial opacity is product diversification. By diversifying their product offerings – often through new product bundles – tech platforms can keep users within their ecosystems, generating more sales. Yet these increasingly diffuse sources of profits are rarely disclosed in their 10-Ks. Although the current “segment reporting” rules were designed to ensure that large, diversified conglomerates release disaggregated financial information, in practice the rules give companies wide discretion to define what counts as an “operating segment.” Apple, for example, defines its segments not by product but by geography, so it is not required to disclose App Store profits.
This flexibility allows Big Tech companies to hide the financials of some of their leading products, even those that technically exceed the reporting threshold because they account for 10% or more of total assets, revenues, or profit/loss. Big Tech firms have become so large that even enormous product segments with sales exceeding $20 billion can be classified in such a way that they do not meet the threshold at all. Hence, the full scale of Amazon Web Services appears to have been kept hidden from competitors for longer than should have been permitted.
The absence of detailed financial and operating information means that regulators tasked with identifying possible abuses of market power are effectively starting from scratch with each case. To determine a firm’s power, regulators must be able to analyze the relationship between prices, costs, and capital outlays; but these factors are obscured when financials are aggregated across products. Value-creating activities are routinely blended with zero-sum value-extractive activities. And even though Big Tech companies have used “free” products to become gatekeepers to entire markets, they still are required to disclose only profits and losses.
In a new report, co-authored with Tim O’Reilly and Josh Ryan-Collins, we argue that the SEC’s 10-K disclosures need urgent updating. Regulators must go beyond “profit and loss” reporting to require specific non-financial operating disclosures on all products that meet a certain threshold of monthly active users. This rule would require disaggregated operating disclosures on products like Alphabet’s Google Search, YouTube, Chrome, and Android, or Meta’s Facebook, Instagram, WhatsApp, and Messenger. The firms already use operating data on users internally to assess product performance, so they would not be burdened by mandatory disclosure in their annual 10-Ks.
Moreover, the segment reporting rules need to be given “teeth,” and they need to scale with firm size to ensure the release of “hidden data” from consolidated financial statements. To tackle both issues, companies should be required to disclose detailed financials on any product with at least $5 billion in annual revenues. To put that amount into context, it would trigger disclosure of financial information on Apple’s AirPods and Microsoft’s Azure.
Just as environmental, social, and governance reporting is becoming essential to help navigate climate change, enhanced 10-K reporting is necessary to reveal the nature and extent of Big Tech’s market dominance. Only then can we see if these giants owe their continued growth to value creation or to value extraction.
In collaboration with Project Syndicate, 2022.
There is currently no relief in sight in the Ukraine crisis. Yesterday, the USA declared that it would send troops to Poland, Romania, and a smaller contingent to Germany. About 1000 soldiers are to be transferred from Vilseck near Nuremberg to Romania, in return for which 300 soldiers previously stationed in the USA will come to Middle Franconia. Another 1700 are to be sent to Poland. Ministry spokesman John Kirby spoke of an “unmistakable signal” to Vladimir Putin that “NATO is important to the USA and our allies”. From Moscow, on the other hand, Boris Johnson and members of his government received unfriendly remarks. De-escalation and diplomacy, as Emmanuel Macron and Putin presented it only a few days ago, look different.
Brussels was also on edge yesterday when Finance Commissioner Mairead McGuinness presented the final Commission proposal for the second delegated act on the EU taxonomy. In the past weeks, the authority had to face criticism from all sides for its preliminary draft to supplement the EU taxonomy. Nevertheless, the Brussels authority stuck to its plans to include natural gas and nuclear energy in the set of rules for sustainable financial transactions and to classify them as “green” under certain conditions.
Only minor adjustments had been announced by the responsible parties. For example, the regulations for gas-fired power plants were further relaxed compared to the previously hotly debated draft. Much to the delight of industry. Environmentalists, on the other hand, are up in arms. Whether the controversial plan can be overturned before it comes into force remains doubtful. Timo Landenberger and Charlotte Wirth have summed up the reactions.
For decades, experts from industry and research have been negotiating technical specifications and procedures in Europe’s standardization bodies, away from the public eye and largely untroubled by politics. The EU Commission wants to change that: Governments, industry, and experts should sit down at the same table and prevent Europe from losing more ground to China or the USA. After all, what was long a playground for nerds has now become a playing field for major geopolitics. Till Hoppe analyzes the goal the Commission is pursuing with its new standardization strategy.
EU Finance Commissioner Mairead McGuinness spoke of an “important step towards a climate-neutral economy”. On Wednesday, the European Commission officially presented its delegated act on the so-called taxonomy, in which nuclear energy and natural gas were still classified as sustainable transition solutions under certain conditions. The draft called them a “key evolution of the financial sector towards sustainability,” helping the EU meet its ambitious climate goals.
In recent weeks, however, there had been criticism of the project from many sides. The scientists of the Platform for Sustainable Finance, an expert group of the Commission that was originally entrusted with the development of the taxonomy criteria, had also demanded significant improvements. However, the Brussels-based authority only complied with these demands in small parts.
For gas-fired power plants, the experts had called for the limits of 270 grams of CO2 per kWh or a maximum of 550 kg of CO2 per year to be tightened significantly. The Commission did not follow this call. Instead, the regulations were even relaxed and the interim targets for blending lower-CO2 gases were removed. The only requirement that remained was that gas-fired power plants should perform a so-called fuel switch to renewable or low-CO2 gasses by 2035.
The platform also criticized the sustainability label for nuclear power. It called the criteria too lax, especially for radioactive waste storage, an issue that remains unsolved. Nevertheless, the Commission has only somewhat clarified the provisions for the plans for underground geological repositories, which the member states must submit.
The problem of permanent storage must be addressed, McGuinness said. And that’s exactly what the proposal would provide. “We’re focused on making sure there’s a waste plan. That’s a step forward. The industry needs to be fully responsible for disposal.” Here, the commissioner stressed the importance of a review clause. The criteria would be reviewed every three years and revised if necessary. Then, significant progress would be taken into account for all technologies, including safety solutions.
“And we know we need to move away from particularly harmful energy sources like coal, which today still accounts for 15 percent of electricity production in Europe. […] Today we are setting out how gas and nuclear could make a contribution in the difficult transition to climate neutrality,” McGuinness said. The proposed legislation would even promote improvements in technologies that are essential for the transition. It is not a matter of painting them green, but of recognizing their importance as bridging technologies.
The commissioner admitted “that overall, that feedback we received showed that positions are widely divided”, but she believes that they “have found a balance between fundamentally different opinions in supporting the road to decarbonization.” The Commission had voted on the act – “with overwhelming support,” McGuinness said.
For Luxembourg’s Energy Minister Claude Turmes, the legislation as adopted by the Commission yesterday is “even worse than the previous draft.” So it is even more urgent to reject it. The Green politician also sharply criticized the way the rulebook came about: “I’ve never seen a law being changed via secondary legislation,” he told Europe.Table.
Turmes accuses the Brussels authority of “clear abuse of power.” “If the Commission now acts like this in other areas as well, then we are no longer in a democracy in which small countries still have a chance to have a democratic say,” he said. Together with Austria, Luxembourg would therefore file a lawsuit against the legal act before the ECJ.
German Federal Economics Minister Robert Habeck and Environment Minister Steffi Lemke (both Greens) also reiterated their opposition yesterday. “We have repeatedly made it clear that we consider the inclusion of nuclear energy in the taxonomy to be wrong. The whole thing thwarts the good concept of the taxonomy and runs counter to its goals,” Habeck said. The German government would now discuss how to deal with the EU Commission’s decision. The minister had already made it clear that Germany should reject the legislation if it remained unchanged on key points. Habeck: “We do not see the changes that are important for us.”
Andreas Golthau, an energy expert at the Institute for Transformative Sustainability Research, calls the inclusion of natural gas and nuclear energy “insanity” and also objects to the classification as a bridge technology: “If this is supposed to be a bridge, it’s a pretty short one. We have strong gas demand until 2030, but after that, it goes down very quickly. So we’re talking about eight to ten years. That’s not a bridge. It’s a hop, a skip at most,” the political scientist said. He added, referring to the long construction time for nuclear power plants, “If we’re serious about the climate targets for 2030 and 2055, we can’t hope for technologies that will be available in 15 to 20 years.”
The German industry, on the other hand, welcomes the Commission’s proposal, especially the adjustments to the gas sector. “With a cloud of interim targets like in the draft, the Commission would have slowed down the transformation more than accelerate it,” says VCI CEO Wolfgang Große Entrup.
The German Association of the Energy and Water Industries (BDEW) also welcomes the removal of intermediate steps. However, the requirements here are still very ambitious, especially the complete fuel switch to renewable and decarbonized gases as fuel by the end of 2035. “The right political framework conditions on the part of the EU and at the national level are now crucial. For example, the expansion of renewable energies and thus the production of renewable hydrogen is a mandatory prerequisite,” says BDEW Managing Director Kerstin Andreae.
Markus Pieper, energy policy spokesman for the CDU/CSU in the EU Parliament, is also confident. “The gas assessment helps the energy transition and energy prices in Germany. It will also make it attractive for private investors to get involved in new gas-fired power plants. The switch to hydrogen is given a realistic perspective.”
In addition, the taxonomy “adequately takes the energy history of the states that rely on nuclear power into account. Its clear safety and technology requirements should now prevent Germany and Austria from interfering in the concerns of Finland or France,” Pieper said, referring to the governments’ opposition to including nuclear power in the regulatory framework.
For Joachim Schuster, financial policy spokesman for the SPD MEPs, the EU Commission has missed an important opportunity with the adoption of the legal act. Clear criteria that can be used to assess which investments are sustainable and which are not would be of great value for implementing the climate protection measures of the Green Deal. “But this can only be done on the basis of scientific findings and not through lazy political compromises,” the MP added.
The politician now sees a risk for public financing projects as well: “Once you regulate this on the capital markets, it naturally becomes a yardstick for EU spending itself,” says Schuster. “Whenever sustainable projects are to be involved, a definition is needed. And it makes no sense to then define sustainability differently than we do now. This only brings us a permanent dispute.”
However, it is unlikely that the Commission’s plan can be stopped now. This would require a qualified majority of 20 of the 27 member states in the Council. In Parliament, 353 of the 705 members would have to vote against it. The Greens, S&D, and the Left have already announced their opposition if the legislation is passed in this form. Together they have 260 votes. The Christian Democrats could tip the scales, because the EPP Group is divided on this issue. While Markus Pieper is in favor of “clear approval,” Peter Liese, environmental spokesman for the CDU/CSU, has recently voiced clear criticism and announced that it would probably be best to “scrap the legal act altogether.”
The Parliament and Council now have four months to review the delegated act and lodge an objection if necessary. The EU Commission currently expects the delegated act on taxonomy to come into force on January 1, 2023. In collaboration with Charlotte Wirth
For decades, experts from industry and research have been negotiating technical specifications and procedures in Europe’s standardization bodies, away from the public eye and largely unbothered by politics. The EU Commission now wants to change that: Politics and industry in Europe are to address the issue at a high level.
Technical standards are of strategic importance, Industry Commissioner Thierry Breton said at the launch of the new standardization strategy. “Europe’s technological sovereignty, ability to reduce dependencies, and protection of EU values will depend on our ability to set standards worldwide.”
Above all, the rapidly growing influence of China, but also of the USA, in this traditional domain of Europe has startled politicians and industry. “European standardization is moving in an increasingly competitive global context,” the Commission writes in its strategy. In critical technologies such as lithium batteries or facial recognition, other countries have taken the lead in international standardization bodies. But their solutions are often incompatible with European values and priorities. Moreover, they give their companies competitive advantages in international markets.
Europe must therefore become more agile in the field and identify future standardization needs at an early stage, argues the Commission (Europe.Table reported). To this end, it is proposing a new high-level forum to identify priorities and ensure the representation of European interests in international bodies such as the International Organization for Standardization (ISO) or the International Electrotechnical Commission (IEC). The forum is to bring together high-level representatives of the member states, national and European standards organizations, and industry and civil society. The forum, which meets annually, is to be underpinned by topic-specific subgroups and cooperate with the European industrial alliances for batteries or green hydrogen, for example.
According to Sibylle Gabler, Head of Government Relations at the German Institute for Standardization (DIN), this construct is based on the Commission’s attempt to link the management levels in business and politics with the level of technical experts. It would be worth a try, “because the management issue of standardization is often not on the minds of the management.”
At the working level, the Commission intends to create a new “Excellence Hub” to pool expertise from the authority’s various directorates general and EU agencies. The experts are to anticipate technological trends at an early stage and initiate new standardization processes. The hub is to be headed by a Chief Standardization Officer.
In its new work program for 2022, the Commission has already identified six areas where new specifications are to be developed under high pressure. These include standards for vaccines and medicines against COVID-19, for the recycling of critical raw materials, for the use of green hydrogen, for low-CO2 cement, and for the certification of semiconductors and the exchange of data. The European standardization organizations CEN, CENELEC, and ETSI are now to prioritize these areas in their work.
The three organizations are also to undergo transformation. This applies above all to ETSI (European Telecommunications Standards Institute). The Commission is concerned that non-European groups such as Huawei have too much weight there: “Some multinational companies have more voices there than the organizations representing the entire stakeholder community,” the strategy states.
To push back the influence, the Commission wants to supplement the EU standardization regulation: the national standardization organizations are to be involved in the formulation of so-called harmonized standards commissioned by the Commission for the implementation of EU law. This involvement is already common practice at CEN and CENELEC, but not at ETSI. At DIN and Co, large foreign companies have less weight.
In addition, the Commission wants to shorten the duration of the standardization process through a series of measures. However, Andreas Schwab (CDU/EPP), spokesman for the EPP Group on internal market policy, also sees the authority itself as being responsible: it is dragging out the process unnecessarily “by publishing finished standards in the Official Journal often only after a long delay”.
But there is little dispute that action is needed. “With great concern” German industry is following the targeted international spread of state-driven, national technology standards from China, said BDI President Siegfried Russwurm. This creates the risk of fragmentation of technical market access conditions and a decline in demand for German and European technologies.
DIN CEO Christoph Winterhalter praises the Commission’s approach: ” China’s very strategic approach to standardization requires a joint identification and prioritization of Europe’s strategic key technologies,” he told Europe.Table.
Wolfgang Weber, Managing Director of the German Electronic and Digital Manufacturers Association (ZVEI), emphasizes that European positions must be increasingly reflected in international standards. Otherwise, there is a danger of being left behind in future technologies. The introduction of a high-level forum sets the course here “to intensify the interaction between industry, politics and the standardization organizations”.
In 2021, Alphabet (Google’s parent), Amazon, Apple, Meta (Facebook’s new alias), and Microsoft were among the world’s largest companies in terms of revenue and profit. These five companies alone increased their market capitalization by an amount greater than Italy’s GDP ($2.5 trillion vs. $2.1 trillion). Big Tech now accounts for nearly a quarter of the S&P 500’s index and a quarter of research and development spending by US publicly listed non-financial firms. Amazon is the world’s fifth-largest employer, and it is still growing.
What can be done about these firms’ growing market dominance? For starters, the situation demands a more proactive regulatory agenda, so that public authorities are not constantly playing catch-up. What we have now is a case-by-case regulatory “war of attrition,” frequently waged by litigation against past business practices. After a lengthy appeals process, the result almost always amounts to “too little, too late.”
The problem is exacerbated by a lack of disaggregated financial disclosures from the Big Tech companies. Their aggregated disclosures no longer come close to explaining how they operate. Investors and regulators need to know more. How many people use WhatsApp each month, and for how many hours? What is the Apple App Store’s profit margin? What is Microsoft Azure’s share of the cloud computing market?
Yes, sometimes one can find approximate answers to such questions on Google Search, but only when they have been revealed by a company whistleblower, an unredacted court document, or a private estimate from a website traffic company. The answers certainly cannot be found in Big Tech’s public 10-Ks, the annual financial performance reports that all US publicly listed companies must file with the Securities and Exchange Commission.
These omissions follow from two features of Big Tech’s powerful platform business model. First, a platform’s utility is often underpinned by “free” or subsidized products that drive user adoption. Even though these products are eventually monetized – either indirectly through advertising or directly through subscriptions, sales, and fees – they do not have to be included in the 10-K as long as they remain largely “free” to the consumer.
Consider Alphabet, which owns at least nine products – including YouTube, Android, Chrome, Gmail, and Google Maps – that have more than one billion active monthly users. Although each product dominates the global market in its sector, Alphabet’s 10-K financial disclosures list only an aggregate “advertising” category and a few limited financial metrics for YouTube and Google Cloud. This opacity has helped the company avoid regulatory scrutiny while establishing a global foothold in key digital markets.
While Big Tech firms sometimes provide monthly active user counts in their earnings calls to investors, these figures are not disclosed systematically in their annual 10-Ks, where the legal onus is higher. A proper disclosure of user “operating metrics” is sorely needed, because these firms’ market domination (and related abuses of power) is increasingly of a non-price nature. Central to this dominance is a large user base.
A large user base in one product, such as MS Word, can allow a firm to extend its dominance to other markets through bundling (think of MS Teams). Big Tech companies’ market power increasingly lies in the “ecosystems” they control, rather than in a single product. That power allows them to lock in users, squeeze out competitors, and build data fortresses.
The second feature of Big Tech’s business model that aids financial opacity is product diversification. By diversifying their product offerings – often through new product bundles – tech platforms can keep users within their ecosystems, generating more sales. Yet these increasingly diffuse sources of profits are rarely disclosed in their 10-Ks. Although the current “segment reporting” rules were designed to ensure that large, diversified conglomerates release disaggregated financial information, in practice the rules give companies wide discretion to define what counts as an “operating segment.” Apple, for example, defines its segments not by product but by geography, so it is not required to disclose App Store profits.
This flexibility allows Big Tech companies to hide the financials of some of their leading products, even those that technically exceed the reporting threshold because they account for 10% or more of total assets, revenues, or profit/loss. Big Tech firms have become so large that even enormous product segments with sales exceeding $20 billion can be classified in such a way that they do not meet the threshold at all. Hence, the full scale of Amazon Web Services appears to have been kept hidden from competitors for longer than should have been permitted.
The absence of detailed financial and operating information means that regulators tasked with identifying possible abuses of market power are effectively starting from scratch with each case. To determine a firm’s power, regulators must be able to analyze the relationship between prices, costs, and capital outlays; but these factors are obscured when financials are aggregated across products. Value-creating activities are routinely blended with zero-sum value-extractive activities. And even though Big Tech companies have used “free” products to become gatekeepers to entire markets, they still are required to disclose only profits and losses.
In a new report, co-authored with Tim O’Reilly and Josh Ryan-Collins, we argue that the SEC’s 10-K disclosures need urgent updating. Regulators must go beyond “profit and loss” reporting to require specific non-financial operating disclosures on all products that meet a certain threshold of monthly active users. This rule would require disaggregated operating disclosures on products like Alphabet’s Google Search, YouTube, Chrome, and Android, or Meta’s Facebook, Instagram, WhatsApp, and Messenger. The firms already use operating data on users internally to assess product performance, so they would not be burdened by mandatory disclosure in their annual 10-Ks.
Moreover, the segment reporting rules need to be given “teeth,” and they need to scale with firm size to ensure the release of “hidden data” from consolidated financial statements. To tackle both issues, companies should be required to disclose detailed financials on any product with at least $5 billion in annual revenues. To put that amount into context, it would trigger disclosure of financial information on Apple’s AirPods and Microsoft’s Azure.
Just as environmental, social, and governance reporting is becoming essential to help navigate climate change, enhanced 10-K reporting is necessary to reveal the nature and extent of Big Tech’s market dominance. Only then can we see if these giants owe their continued growth to value creation or to value extraction.
In collaboration with Project Syndicate, 2022.
