A coalition of investment and sustainable investing groups – including Eurosif, PRI, IIGCC, EFAMA, UNEP FI – alongside more than 90 asset managers announced the publication of a joint statement calling on the European Commission to reconsider its recent proposed changes to the European Sustainability Reporting Standards (ESRS), which would ease several aspects of the EU’s upcoming Corporate Sustainable Reporting Directive (CSRD).

According to the statement, the changes would impact investors’ ability to obtain sustainability-related information required for investment decisions, in addition to reducing their ability to meet their own reporting requirements including those under the EU’s Sustainable Finance Disclosure Regulation (SFDR).

The statement said:

“The proposed approach would limit investor access to the consistent, comparable and reliable information needed to inform decisions and allocate capital in line with sustainability goals, including those of the European Green Deal, the EU Biodiversity Strategy for 2030 and the EU Climate Law.”

Banking association AFME’s response, detailed below, raised similar concerns.

The CSRD, on track to begin applying from the beginning of 2024, is aimed as a major update to the 2014 Non-Financial Reporting Directive (NFRD), the current EU sustainability reporting framework. The new rules will significantly expand the number of companies required to provide sustainability disclosures to over 50,000 from around 12,000 currently, and introduce more detailed reporting requirements on company impacts on the environment, human rights and social standards and sustainability-related risk.

The European Financial Reporting Advisory Group (EFRAG) was mandated by the European Commission in June 2020 to prepare for new EU sustainability reporting standards, and in November 2022, EFRAG submitted its final ESRS draft.

Following EFRAG’s submission, the EU Commission held consultations with regulators and member state sustainable finance groups, which the Commission said raised some concerns about the “challenging nature” of some of the reporting requirements. In June 2023, the EU Commission released a series of proposed changes to the ESRS, easing several of the reporting requirements. One of the key changes was a proposal for all disclosure requirements, with the exception of a set of general disclosures, to be subject to materiality assessments, effectively allowing companies to focus reporting on sustainability factors that they consider material to their businesses.

One of the investor statement’s key concerns is that the draft proposals, however, also allows voluntary disclosure by companies about why specific topics were deemed to be material or not.

Ultimately, the statement said, it would be up to corporates, supported by their consultants and advisers, to determine what is, and isn’t, material to report.

Specific items called for in the statement included maintaining key climate disclosures, including Scopes 1, 2 and 3 emissions, and transition plans mandatory, ensuring mandatory reporting for items relevant to investor regulatory requirements such as SFDR reporting, requiring explanations for why sustainability topics are deemed not material, and reconsidering the optional nature of disclosures regarding own workforce for non-employees and biodiversity transition plans. The investors also call on the EU to ensure the highest possible interoperability with the ISSB and GRI standards.

Eurosif Executive Director Aleksandra Palinska said:

“The first set of the European Sustainability Reporting Standards, as published by the European Commission on 9 June, fails to address investors’ needs and risks undermining the effective implementation of the EU sustainable finance regulatory framework. The European Commission is now presented with a final opportunity to correct its course and find a compromise that would truly reflect all industry and stakeholders’ needs and better match the ambition of EU climate neutrality targets and the EU Green Deal.”

In its own response to the proposals on Thursday, European and global banking group the Association for Financial Markets in Europe (AFME) expressed similar concerns, particularly regarding the effect the changes to the ESRS rules on banks’ ability to meet their own sustainability-related reporting requirements.

In its response, AFME said:

“Under the revised draft ESRS, an undertaking can decide to omit such datapoints if it assesses the information to not be material. When omitted, such information is implicitly reported as “not material for the undertaking” and there is no obligation for the undertakings to explain why a topic was considered not material.

“These datapoints, however, are mandatory for financial institutions’ own disclosures and must be included in Pillar 3 and SFDR reporting even if the companies they finance deemed this information not material.”

AFME’s letter called on the Commission and regulators to provide a solution to help them meet their own reporting obligations in cases where companies have been able to omit relevant information, and for other clarifications in other areas where the proposed rules appear to conflict with their ability to gather information needed for disclosure, in addition to also appealing for strong interoperability with the ISSB standards.

AFME Managing Director, Sustainable Finance, Oliver Moullin, said:

“To ensure that financial institutions can effectively comply with their reporting requirements, it is essential that the Commission provides a solution to enable them to report effectively where relevant metrics have been omitted by their counterparties due to not being assessed as material.”