PensionsEurope says the European Union’s corporate reporting advisers risk “undermining transparency” in financial markets with their current plans to simplify sustainability rules.
Responding to a consultation on proposed cuts to the European Sustainability Reporting Standards (ESRS), the lobby group said “clear disclosure obligations are needed to ensure robust and decision-useful information, particularly for pension funds relying on high-quality sustainability data”.
“Overall, while the revised ESRS represent progress, we urge further adjustments to maintain accountability, comparability, and alignment with investors’ needs,” it stated.
EFRAG, the body in charge of the revisions, wants to reduce the ESRS by two thirds in a bid to make it easier for companies to comply with the EU Corporate Sustainability Reporting Directive (CSRD).
There is widespread consensus that the rules are currently inefficient, and generate too much unnecessary information, although there is less consensus on how to fix them.
NBIM continues push for ISSB
Also responding to the consultation, which closed on Monday, Norges Bank Investment Management (NBIM) called for “full alignment” between the ESRS and the International Sustainability Standards Board (ISSB) standards.
“The European Commission mandate clearly requires EFRAG to maximise interoperability with global standards,” said Carine Smith Ihenacho, the fund’s chief governance and compliance officer, and policy advisor Shilpi Nanda, in a letter to EFRAG.
They warned that a proposal to make it permanently voluntary for companies to disclose the anticipated financial effects of sustainability issues would “create risks that investors will not receive the consistent, decision-useful information needed for effective investment analysis”.
The same goes for the planned introduction of relief provisions that companies can use to avoid making certain disclosures, including commercially sensitive ones.
NBIM argued that the proposed update would create greater divergence between the ISSB’s rules and the ESRS, making it difficult for investors to compare information from portfolio companies covered by the two respective frameworks.
It said EFRAG should instead use ISSB as its basis, as well as explicitly incorporating sectoral standards created by the Sustainability Accounting Standards Board (SASB) and guidance developed by the Taskforce on Nature-related Financial Disclosures (TNFD).
“These recommendations should reduce reporting complexity while advancing a unified global sustainability reporting infrastructure that delivers consistent, comparable information investors need.”
EU values and power at stake?
During a Parliamentary hearing last week, Chiara Del Prete, who is seeking to become the next chair of EFRAG’s sustainability reporting board, insisted it did not make sense to adopt ISSB.
“The climate, environmental and human policies of Europe are all at stake here,” she told members of European Parliament ahead of their vote on who should run the board.
“If Europe lets other jurisdictions take over our rules, then Europe will have no more influence than any of the other 33 jurisdictions adopting those international standards.”
Political uncertainty
EFRAG’s simplification efforts are part of a broader initiative within Europe to streamline sustainability rules – especially CSRD.
Heads of state from across the EU are due to meet this week to discuss the future of the law, ahead of upcoming negotiations with Parliament and the European Commission.
The legal affairs committee of Parliament will vote on its negotiating position on 13 October, and Parliament is expected to sign off on its entity-level position shortly after that.
In research published today, nearly half of companies said the current legal uncertainty around sustainability reports was delaying their investment decisions.
The findings were based on the results of YouGov survey of 2,500 business leaders, commissioned by environmental think-tank E3G.
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