Eurosif Calls for Ambitious EU Sustainability Reporting Standards (ESRS)

12 June 2023

Eurosif - The European Sustainable Investment Forum - calls on the European Commission to retain the ambition of the European Sustainability Reporting Standards (ESRS) reflected in the final EFRAG proposals of November 2022.

On Friday 9th June, the European Commission published the draft Delegated Act laying down the contents of the first set of European Sustainability Reporting Standards (ESRS) as required by the Corporate Sustainability Reporting Directive (CSRD) adopted in December 2022. The text of the draft Delegated Act and both its Annexes are available for public consultation until 7th July 2023.

Eurosif is very concerned with the European Commission’s latest changes to the draft standards, which mark a significant setback in ambition compared to the final recommendations published by EFRAG in November 2022.

The development of robust and comprehensive ESRS, based on the double materiality principle and covering environmental, social and governance matters, is strongly supported by Eurosif. These standards are key to solving the corporate sustainability data gaps as well as to improving the quality, reliability and comparability of these disclosures.

However, the proposed draft Delegated Act renders all ESRS standards, disclosure requirements and data points subject to a materiality assessment. Combined with the added flexibility authorised by the Commission for these assessments, this would effectively allow companies to leave out entire parts of their sustainability disclosures.

This goes against EFRAG’s final technical advice recognising the aforementioned disclosures as always being material, which were agreed upon by representatives of companies (preparers), investors, other financial market participants and civil society. It should also be noted that EFRAG proposals for ESRS Set 1, before they were submitted to the European Commission in November 2022, were nearly halved following the public consultation last year.

If adopted as such, this draft Delegated Act risks undermining the effectiveness of the CSRD as well as the implementation and coherence of the EU sustainable finance framework. Investors and other financial market participants need reliable and comparable sustainability-related corporate disclosures to make informed investment decisions and to comply with their own regulatory requirements stemming from the Sustainable Finance Disclosure Regulation (SFDR), Benchmark Regulation, and Pillar 3 disclosure requirements.

Furthermore, making some of the most essential climate disclosures – including indicators on GHG emissions, climate targets and transition plans – subject to a materiality assessment is inconsistent with the EU Commission’s commitment to deliver on the objectives of the European Green Deal and EU Climate law.

Making some disclosures fully voluntary, such as why a sustainability topic would not be deemed material, or those related to biodiversity and own-workforce, can also be questioned.

Aleksandra Palinska, Eurosif's Executive Director, commented: “It is regrettable that this Draft Delegated Act disregards the balanced agreement found within EFRAG structures between a representative panel of expert stakeholders and following a lengthy due process. In its current shape, this draft neglects in particular the concerns expressed for years by investors and financial institutions, calling for improved availability of comparable and reliable corporate sustainability disclosures.”

Palinska added: “We acknowledge the challenges preparers will face when complying with the ESRS. However, the EU Commission should not prioritise reducing reporting requirements at the expense of the public interest and other stakeholders, including of investors and financial institutions in dire need of sustainability information to comply with their own regulatory requirements. If not amended, this draft Delegated Act will hinder the capacity of investors to make informed sustainable investment decisions and risks jeopardising EU commitments to deliver on the EU’s Green Deal and Climate Law ambitions.” 

Overall, Eurosif calls on the European Commission to reconsider its latest changes and to follow the final EFRAG recommendations, which were already the result of a compromise between preparers, financial market participants, including investors, and civil society. Specifically, we urge the European Commission to:

  • Maintain mandatory key climate disclosure indicators and topics, including Scope 1, 2, and 3 GHG emissions, climate targets and transition plans;
  • Keep mandatory key environmental and social disclosures necessary to comply with the SFDR, the Benchmark Regulation and Climate Benchmark Delegated Acts, as well as Pillar 3 disclosure requirements;
  • Reconsider the voluntary nature of certain disclosures, including on why a specific sustainability topic would not be deemed material, as well as on biodiversity and own workforce.