Eurosif Responses to ESRS
The European Sustainable Investment Forum (Eurosif) expressed its opinion on the revised European Sustainability Reporting Standards (ESRS), hoping that the EU will maintain stricter reporting standards.
Eurosif believes that compared to previous versions submitted by the European Financial Reporting Advisory Group (EFRAG), the new ESRS may affect the practice of the Corporate Sustainability Reporting Directive (CSRD) and the implementation of the EU’s sustainable finance framework.
EU’s Revision of European Sustainability Reporting Standards
The EU revised the ESRS submitted by EFRAG in early June, making significant adjustments in terms of substantive evaluation, data disclosure quantity, etc., such as:
- EFRAG believes that disclosures related to climate, labor, SFDR, etc. can be directly regarded as material information, and therefore require mandatory disclosure. The EU believes that all information needs to undergo material evaluation.
- EFRAG did not set a delayed period for Scope 3 carbon emissions, biodiversity, and other disclosures. The EU believes that companies with fewer than 750 employees can gradually disclose these issues within one to three years.
- EFRAG has set up data points for disclosure, while the EU has reduced data points by half and shifted some data from mandatory disclosure to voluntary disclosure.
Related Post: EU Revised European Sustainability Reporting Standards
Eurosif Recommends on European Sustainability Reporting Standards
Eurosif believes that ESRS should be based on the principle of double materiality and cover environmental, social, and governance aspects. ESRS can improve the quality of sustainable disclosure for enterprises. However, the EU’s modifications require material evaluation of all ESRS standards and data points, which may result in companies omitting some contents in their disclosures.
From the perspective of sustainable investment, financial market participants need consistent and reliable information disclosure and comply with the regulatory requirements of the Sustainable Finance Disclosure Regulation (SFDR). Therefore, conducting a substantive assessment of important climate disclosures (greenhouse gas emissions indicators, climate targets, transition plans) does not comply with the European Green Deal and European Climate Law.
Eurosif believes that regulatory agencies face challenges in developing ESRS, but modifications to ESRS may affect investors’ ability to make sustainable decisions. The ESRS draft submitted by EFRAG has received recognition and support from numerous stakeholders, and the EU may consider following EFRAG’s recommendations.
Eurosif believes that the EU needs to:
- Maintain mandatory climate disclosure, such as Scope 1 2 3, climate targets, and transition plans.
- Maintain necessary environmental and social disclosures to comply with SFDR, Climate Benchmark Delegated Acts, and Pillar 3 disclosure requirements.
- Reconsider voluntary disclosure of certain points, such as biodiversity and labor data.
Eurosif plans to participate in subsequent public consultations on ESRS and express opinions on the modifications. After a four-week consultation period, ESRS may be officially approved and implemented in January 2024. The ESRS based enterprise sustainability report will be released in 2025.