European standards ‘weaken and compromise’ sustainability disclosure

Asset managers and financial NGOs concerned latest ESRS requirements 'downgraded' as consultation closes

Although asset managers want to see alignment between various sustainability reporting frameworks, feedback from the most recent consultation on the European Sustainability Reporting Standards (ESRS) shows some are concerned standards may be ‘reduced’ in order to do so.

The consultation on the first set of reporting standards closed on Friday last week, with the European Commission receiving 604 responses.

The ESRS, which were approved by the European Financial Reporting Advisory Group last November, outline the ESG reporting requirements for corporates as part of the Corporate Sustainability Reporting Directive (CSRD), which is expected to come into force for the 2024 reporting year, with the first submissions due in 2025.

Among those to submit a response was Impax, which welcomed the recommendations but flagged concern about the increasing burden of regulatory requirements, requesting ESRS streamline itself with the International Sustainability Standards Board (ISSB).

“We urge the ESRS to seek consistency and interoperability, especially with the global ISSB sustainability reporting baseline and standard that is being rolled-out and adopted by many countries, regions and exchanges,” the firm said.

Candriam also highlighted the need for “interoperability between reporting frameworks” but noted it was regrettable that in aiming for this, some areas, such as the remuneration policies previously put forward in the ESRS, had been “reduced”.

Its response also pointed out the differences between CSRD and SFDR requirements from financial institutions and corporates. It has asked the European Commission therefore to make PAI indicators material across the board.

The Belgium-based firm also recommended the European Commission should remove the materiality assessment and make fully mandatory climate transition plans and targets to allow for comparability, such as net-zero and decarbonisation plans.

ABN AMRO’s feedback similarly raised concerns with alignments that may constitute a “downgrade” to reporting requirements, such as reporting on workers that are not directly employed by a company such as self-employed and contract workers.

Disclosure requirements and data points should be mandatory,” in this area, the firm said.

For Neuberger Berman, the divergence between various reporting frameworks will come from a lack of an agreed definition of financial materiality. Its response said: “While we welcome the dialogue between the EU and the ISSB to promote interoperability between both reporting standards, we are concerned that the diverging financial materiality definitions will prove confusing for investors and investee companies.”

Outside industry feedback

Sustainable investment industry NGOs and other relevant players also submitted feedback expressing stronger concern about the ‘reduction’ flagged in proposals.

Climate legal NGO ClientEarth said: “The Commission’s current proposals weaken and compromise the proposed sustainability disclosure regime in ways which are not justified and critically undermine the EUs sustainability objectives.”

Carbon Tracker added: “We understand the rationale for removing the rebuttable presumption 2 in the draft ESRS and replacing it with a materiality assessment 3, with some exceptions. However, we believe that the Commission’s subsequent removal of the rebuttal presumption for climate-related disclosures and datapoints risks significantly reducing the quality of information content for investors.”

ShareAction said the proposed changes amount to a “lowering of the level of ambition compared to what was agreed by the co-legislators when defining the CSRD” and is calling on the Commission to “maintain the integrity of the ESRS as a full set of standards and prevent some standards being prioritised over others”.


Natasha Turner

Natasha is global editor at ESG Clarity, part of Mark Allen Financial, and has been a financial journalist for seven years. She has been shortlisted for Story of the Year and Investment Journalist of the...