By Simon Jessop, Kate Abnett and Virginia Furness

LONDON (Reuters) - A move by the European Commission to pare back its flagship sustainability reporting rules risks making it harder for investors to decide where to put their money to help the bloc reach its climate goals.

Since the 2015 global deal on limiting climate change was reached, Europe has set the pace in figuring out how to move the real economy towards net-zero emissions by 2050, including by beginning to define what a "green" investment looks like and by having companies disclose their environmental footprint.

That regulatory backdrop had led to a sharp rise in new European financial products aligned with the bloc's climate goals, which include a near-term aim to cut net emissions 55% by 2030.

Faced with growing pressure from companies and some EU governments to help struggling industries, and in view of the rejection of climate change action by the United States under Donald Trump, the European Commission on Wednesday laid out plans to trim the reporting burden on firms.

As well as slashing the number of companies having to report data, the EU executive proposed scaling back a landmark supply chain due diligence law and softened penalties for those that breach it.

While supporters said the moves would allow firms to focus on actually cutting emissions rather than filling out paperwork, others said it would make it harder to compare the actions of companies.

"By introducing broad exemptions and postponements, the proposal risks undermining critical sustainability objectives," said Hyewon Kong, Sustainable Investment Director at investor Gresham House.

As well as reducing the number of companies obliged to report emissions data under its Corporate Sustainability Reporting Directive by more than 80% and delaying the reporting deadline for others, Brussels scrapped plans for sector-specific reporting standards.

Ashley Hamilton Claxton, head of responsible investment at Royal London Asset Management, said she welcomed the move to simplify what had become a "complex regulatory environment", but called the loss of sector-specific standards a "setback".

"This information is essential for... assessing the alignment of companies with the goals of the Paris Agreement," she said.

EU officials said the moves would not weaken the bloc's climate targets but rather make it easier for companies and investors to implement them in the real world.

Nathan Fabian, chief sustainable systems officer at U.N.-backed investor network the Principles for Responsible Investment, said the proposals would "materially reduce" investors' access to the information they need.

Marjella Lecourt-Alma, chief executive of data firm Datamaran, said while most major companies would still be covered by the rules, fewer disclosures could see investors "struggle to connect the dots" on risks that impact valuations.

While smaller companies could report voluntarily, the proposed rules would limit what extra sustainability information banks and other investors could ask them to share.

Filip Gregor, Head of Responsible Companies at advocacy group Frank Bold, said this created a risk that those who ask companies for extra sustainability information "could be prosecuted for their efforts".

Corporate reporting against the bloc's "taxonomy" of green activities, meant to help investors better understand a company's positive environmental efforts, would also be changed to release 80% of firms from disclosing.

By delaying reporting deadlines for many firms until close to the EU's 2030 emissions-cutting target date, Brussels may hamstring its ability to meet the goal, said Matthew Fisher, head of policy at sustainability firm Watershed.

"If you delay and pause that disclosure and transparency, it undermines these very ambitious goals," he said. "I don't think those two things are consistent, fundamentally".

(Reporting by Simon Jessop; Editing by Hugh Lawson)