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Asset managers worldwide are coming together to call on the European Commission to enforce more stringent ESG reporting rules. They are asking the Commission to take steps to ensure that companies provide accurate and consistent ESG data.
Well over ninety representatives from asset management, banking, ESG fund associations, and other financial entities have asked the European Commission to revise their regulations concerning ESG reporting, expressing the opinion that the current standards are not stringent enough.
Fidelity, Candriam, and five ESG foundations - including the European Sustainable Investment Forum (Eurosif) - have requested the alteration of the most recent amendments to the European Sustainability Reporting Standards (ESRS) as a collective.
When adopted, the bill will specify how much information concerning the environment, social, and governance (ESG) aspects of 50,000 businesses must be revealed to investors and other interested parties. Nevertheless, the alliance declared that the info demanded is insufficient for investors to make educated ESG judgements.
The two parties released a statement outlining the deficiencies of the legal framework and offering suggestions for its amelioration.
We noted that the proposals to no longer mandate certain key disclosure indicators to be reported, instead leaving them up to materiality assessment, has caused us concern. We view this as a significant decrease in ambition compared to what was originally envisioned by the European Financial Reporting Advisory Group (EFRAG).
Despite the difficulties associated with the ESRS's introduction, the version of the ESRS published by EFRAG in November of 2022 resulted from a consensus among all involved parties.
Following a public consultation period, EFRAG's initial proposed number of reporting requirements was reduced by nearly half, as highlighted by the group.
Ursula von der Leyen, President of the European Commission, made it clear that she did not want the regulations to be unnecessarily strict, as that could lead to a decrease in competition. She also stated that the existing proposition is in accordance with the International Sustainability Standards Board rules.
At a public hearing last week, Aleksandra Palinska, executive director of Eurosif, expressed that "investors and other financial market participants' interests were not given due consideration" when the proposal was created.
The EU executive body should take into account a few propositions, such as:
Making sure that key climate data points, such as Scope 1, 2, and 3 greenhouse gas emissions, are mandatory so that investors can assess the trustworthiness of corporate transition strategies;
Establishing that environmental and social data pertinent to SFDR, the EU Climate Benchmark Regulation, Pillar 3 disclosures, and other investor reporting regulations must be reported by applicable companies;
Requiring companies to explain why particular sustainability topics are not deemed essential;
Considering changing the optional status of disclosures regarding non-employees and biodiversity transition plans to give investors insight into how companies will conform to the EU Biodiversity Strategy for 2030 and the Kunming-Montreal Global Biodiversity Framework;
They are maximizing compatibility between the ESRS, ISSB, and GRI Standards to reduce fragmentation in global reporting and back cross-border capital flows while upholding the double materiality principle enshrined in CSRD and ESRS.
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After the feedback from the consultation has been received, the proposal will be forwarded to the European Parliament and the EU Council. The initiative is anticipated to commence in 2024, with the initial corporate reports to be handed in the year after.
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