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Plans for changing biodiversity and worker disclosures will become optional.
The European Commission (EC) adopted the European Sustainability Reporting Standards (ESRS) today. However, some changes, such as making some disclosures optional instead of mandatory, phasing in some disclosures, such as Scope 3, and letting companies decide what is or isn’t important, have been called a “compromise” by people who write about sustainable investment.
The European Financial Reporting Advisory Group approved the ESRS in November of last year. They describe the ESG reporting requirements for corporations as part of the Corporate Sustainability Reporting Directive, which is expected to go into effect for the 2024 reporting year, with the first reports due in 2025.
They talk about ESG problems like climate change, biodiversity, and human rights. Their goal is to help investors understand how the companies in which they invest affect sustainability.
Sustainable asset managers were worried that the ESRS wouldn’t match up with other standards, which would make it harder for them to report on sustainability. The debate on the standards ended earlier this month.
For example, in its response to the consultation, Impax said, “We urge the ESRS to seek consistency and interoperability, especially with the global [International Sustainability Standards Board] ISSB sustainability reporting baseline and standard that is being rolled out and adopted by many countries, regions, and exchanges.”
When the EC adopted the ESRS, it said that the standards “take into account discussions with the ISSB and the Global Reporting Initiative (GRI) to ensure a very high degree of interoperability between EU and global standards and to keep companies from having to report twice on the same thing.”
Because of this, the GRI has “welcomed” the fact that the EC has chosen to use the ESRS.
“We support the highest level of interoperability between ESRS and GRI, which will keep companies from having to report twice,” said Eelco van der Enden, CEO of GRI.
‘Compromises’
But asset managers and NGOs that replied to the consultation pointed out that policies would need to be “watered down” for this alignment to happen.
ClientEarth said in its answer to the consultation earlier this month, “The Commission’s current proposals weaken and compromise the proposed sustainability disclosure regime in ways that are not justified and do a great deal of damage to the EU’s sustainability goals.”
The EC said today that it had made the following changes to the draught standards in reaction to comments and to make them more in line with those of other global standard-setters:
That all standards and disclosures (except “general disclosures”) will be subject to a “materiality assessment.” The European Commission (EC) said that this will give companies “more freedom to decide exactly what information is relevant (or “material”) in their situations.”
That the rules will be put in place gradually. For example, companies with fewer than 750 workers don’t have to report Scope 3 emissions data in the first year they follow the rules.
That some data points, like biodiversity transition plans and certain signs about “non-employees” in the undertaking’s own workforce, will become optional. It has also given people more freedom with some of the required data points.
Mirjam Wolfrum, who is in charge of policy engagement for Europe at CDP, called these “compromises” and said that “understanding why companies ignore certain topics will be important to make sure investors, auditors, and regulators have comparable and meaningful information.”
In a similar way, Elise Attal, who is in charge of EU policy for Principles for Responsible Investment, said that the EC’s choice to make all issue-specific reporting depend on a company’s own materiality assessment might not give investors access to consistent and reliable information.
“At the first review of this delegated act in 2026,” Attal said, “the European Commission should commit to making it mandatory to disclose key climate disclosure indicators and environmental and social indicators that are relevant to SFDR.”
“In the meantime, it should give clear, thorough, and strong guidance on materiality assessments so that companies don’t leave out important sustainability information.”
