Investors push back on easing EU sustainability requirements

A coalition of investment and sustainable investing organisations, along with over 90 asset managers, has released a statement urging the European Commission to reconsider proposed changes to the European Sustainability Reporting Standards (ESRS).

The statement, penned by groups including Eurosif and Principles for Responsible Investment, argues that the proposed changes will relax certain aspects of the upcoming corporate sustainable reporting directive (CSRD). It states that the changes will create problems for investors in accessing essential sustainability related information, for making investment decisions and fulfilling their reporting obligations under the EU’s Sustainable Finance Disclosure Regulation (SFDR).

The statement emphasises that these alterations would limit investors’ ability to obtain consistent, comparable, and reliable information necessary for allocating capital in alignment with sustainability objectives, such as those outlined in the European Green Deal, the EU Biodiversity Strategy for 2030, and the EU Climate Law.

WWF has separately warned that the changes could “severely impede the commission’s sustainable finance agenda”.

The CSRD, set to be implemented from the beginning of 2024, represents a significant update to the current EU sustainability reporting framework. It expands the number of companies required to disclose sustainability information from approximately 12,000 to over 50,000. It also introduces more detailed reporting requirements regarding environmental impacts, human rights, social standards and sustainability related risks.

The ESRS proposals were published in November last year. In June, the commission released proposed changes to the ESRS based on consultation feedback from regulators and sustainable finance groups.

One of the key concerns raised in the investor statement is that companies will be allowed to decide what information should be reported as material. Reporting on biodiversity, for example, is seen as non-compulsory. The investor group says companies should be required to explain why sustainability topics are not considered material.

The statement, which was also signed by the Institutional Investors Group on Climate Change, the European Fund and Asset Management Association, and the United Nations Environment Programme Finance Initiative, presents several other demands

• retaining crucial climate disclosures such as scope 1, 2, and 3 emissions
• mandatory transition plans
• mandatory reporting of items relevant to investor regulatory requirements such as SFDR reporting,
• reconsidering whether the ‘own workforce for non-employees’ disclosures should be fully optional for businesses,
• biodiversity transition plans
• high interoperability with standards set by the International Sustainability Standards Board and Global Reporting Initiative.

In a separate response to the proposed changes, the Association for Financial Markets in Europe shared similar concerns. “Under the proposed ESRS, companies can now decide to omit certain datapoints if they assess the information not to be material,” it said. “These datapoints, however, include information required by financial institutions to comply with their own disclosures and must be included in Pillar 3 and the Sustainable Finance Disclosure Regulation (SFDR) reporting on a quantitative basis”.

It is still being determined when the standards will come into force, although expectations are that they’ll be made official by the end of the year. Large-listed companies must align with the ESRS reporting standards on 2024 activities.