2023-08-24 05:00:00
EU adopts soft version of ESRS standards, raising concerns among investors and NGOs.
Summer seems conducive to the publication of sustainability standards. At the end of June, the International Sustainability Standards Board (ISSB) published its first guidelines dedicated to the disclosure by companies of climate-related data.1. Then, at the end of July, the European Commission adopted the European Sustainability Reporting Standards (ESRS).
ESRS standards cover all major environmental, social and governance (ESG) topics considered in sustainable finance: climate, pollution, water, biodiversity, resources, employees, suppliers, communities, consumers, and business conduct. These standards should be used by large corporations and publicly traded companies to disclose information about the risks and opportunities arising from social and environmental issues, and the impact of their activities on people and the environment. The aim is to help investors, civil society organisations, consumers and other stakeholders to assess the sustainability performance of companies, in the spirit of the European green deal ).
In their initial version, the ESRS standards required companies to disclose data on a significant number of criteria. After various exchanges and consultations, and under the effect of lobbying by professional organisations, a certain flexibility has been introduced into these standards: from now on, companies can choose not to provide information on subjects that they consider irrelevant ( non-material); if they make this choice on the climate issue, they will nevertheless have to explain in detail why they consider that this issue is not relevant as far as they are concerned.
This relaxation, wanted by the European Commission, led Finance Commissioner Mairead McGuinness to say: ESRS standards “strike a fair balance between limiting the burden on the companies concerned and allowing companies to show the their efforts to meet the Green Deal agenda and, therefore, to have access to sustainable financing”. Some non-governmental organizations (NGOs) are concerned, fearing that in their latest version these standards are “watered down” (NordSIP). Thus, for ClientEarth: “The current Commission proposals weaken and undermine the sustainability reporting regime in a way that is unjustified and seriously undermines the EU’s sustainability goals. »
Several investor organisations, notably the Principles for Responsible Investment (PRI) and Eurosif, have also expressed their reservations about the flexibility recently introduced by the European Commission in the ESRS standards. They fear that their members – large institutional investors and asset managers – do not have the information necessary to fully exercise their own reporting obligations (particularly within the framework of European SFDR regulations). If a company considers that the climate issue is not relevant to its activity, and that it can therefore omit to publish data on this subject, can investors holding shares of this company be able to trust it, consider that it does not generate a negative impact and therefore does not contribute negatively to the ESG performance of its portfolio? For the insurer Allianz, this situation creates a risk of greenwashing for financial institutions.
For Elise Attal, European policy officer at the PRI, it would be healthy for the situation to change: “The European Commission should commit to making mandatory the key climate disclosure indicators and the environmental and social indicators relevant to the SFDR during the first revision of this delegated act in 2026. By then, it should provide clear, comprehensive and robust guidance on materiality assessments, so that material sustainability information is not overlooked by companies.”
Reactions are more positive on efforts to harmonize ESRS standards, GRI (Global Reporting Initiative) standards and ISSB standards. The European Union claims to have taken care to allow a “very high degree of interoperability” between these standards, in order to avoid companies having to make double reporting efforts, which was welcomed by the GRI but also by data managers. assets like Candriam. Although the harmonization of sustainability standards is desired by many players, there are still significant differences between the simple materiality approach (focus on the financial risks for the company, defended by the ISSB) and that of double materiality. (taking into account the impact of companies on society and the environment, promoted by the GRI and the European Union).
1 Sustainability, a question of value or values?
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