Asset managers unite to urge European Commission to tighten ESG reporting rules

Almost 100 asset managers, banks, ESG fund associations and other financial firms have called on the European Commission to amend its ESG reporting rules, claiming they are not strong enough.

The coalition, which includes Fidelity, Candriam and five ESG foundations such as the European Sustainable Investment Forum (Eurosif), have asked for the latest changes to the first set of the European Sustainability Reporting Standards (ESRS) to be altered.

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Once passed, the law will determine how much environmental, social and governance data about 50,000 companies need to disclose to investors and other stakeholders. But the coalition said the required data is not enough for investors to make informed ESG decisions.

In a joint statement, they presented the shortfalls in the new law along with their suggestions. 

"We are concerned by the proposals to move away from requiring certain key disclosure indicators to be reported on a mandatory basis, which will instead be subject to materiality assessment," it said.

"We see this as a significant rollback of ambition compared to that envisaged by the European Financial Reporting Advisory Group (EFRAG).

"We recognise the implementation challenges of the ESRS. However, the final draft ESRS set 1 published by EFRAG in November 2022 was already the result of a compromise between all stakeholders."

The group added this included representatives of the reporting companies, financial markets participants, advisers including auditors and civil society, and that after a public consultation, the number of reporting requirements was nearly halved compared to the initial EFRAG proposals.

European Commission president Ursula von der Leyen said she did not want the rules to be so onerous as to hurt competition, and the current proposal is also aligned with International Sustainability Standards Board guidelines.

But in a public hearing last week, Aleksandra Palinska, executive director of Eurosif, said: "Unfortunately, we feel that investors and other financial market participants' interests were not duly taken into consideration" when the proposal was drawn up.

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The statement includes a number of suggestions to the EU executive body including:

• Maintaining key climate disclosure indicators as mandatory, including Scope 1, 2, and 3 GHG emissions and disclosures enabling investors to assess the credibility of corporate transition plans;
• Ensuring that environmental and social indicators relevant to SFDR, EU Climate Benchmark Regulation and Climate Benchmarks Delegated Acts, Pillar 3 disclosures and other investor reporting regulations are disclosed by in-scope companies on a mandatory basis;
• Requiring explanations as to why certain sustainability topics are not considered material for a company;
• Reconsidering the fully optional nature of: (i) own workforce disclosures on non-employees; and (ii) biodiversity transition plans to provide investors with information on how companies will align their strategy and business models with the EU Biodiversity Strategy for 2030 and Kunming-Montreal Global Biodiversity Framework; and
• Ensuring maximum possible interoperability of the ESRS with ISSB and GRI Standards, to reduce fragmentation across the global reporting landscape and support cross-border capital flows while upholding the double materiality principle enshrined in CSRD and ESRS.

Once the consultation responses have been submitted, the proposal will be sent to the European Parliament and then the EU Council. Implementation is planned for 2024, with the first corporate reports due the following year.