Pension fund trade bodies have welcomed the European Commission’s proposed corporate sustainability legislation, indicating it held out the promise of delivering information pension funds need to meet their own disclosure obligations and the objectives of their responsible investment policies.
The sentiment was echoed by other financial groups.
InsuranceEurope said it was very supportive of the Corporate Sustainability Reporting Directive (CSRD) initiative, saying “it is vital that consistent, comparable and machine-readable sustainability data is available, so that insurers can make appropriate investment decisions and comply with European regulatory disclosure requirements”.
The International Capital Market Association sees the proposed CSRD as contributing to the completion of the Capital Markets Union (CMU) “and is a further step in connecting the dots with other EU regulation that resulted from the EU action plan, such as [the Sustainable Finance Disclosure Regulation] (SFDR), the EU taxonomy regulation and the amended Benchmark Regulation, all of which can only fully meet their disclosure objectives, if relevant non-financial information is available from investee companies”.
PensionsEurope and Pensioenfederatie, its Dutch member, specifically welcomed “the clear link with the SFDR in the CSRD proposal”, referring to the SFDR introducing reporting requirements on principal adverse impacts (PAIs) along with a broad set of 18 quantitative and qualitative indicators.
“Therefore, the financial sector essentially is required to report on information that does not yet need to be made public by companies,” said PensionsEurope. “This means that pension funds will need to obtain information, partly based on estimates, from specialised data providers. As a result, data sets can diverge significantly and come at a significant cost.”
Filling gaps, reducing costs
It said the CSRD proposal should fill this data gap by including the PAI indicators in the EU sustainability reporting standard, and welcomed that the CSRD proposal acknowledged the need to fulfil the financial sector’s information needs under the SFDR.
However, PensionsEurope considers the Commission’s proposal could be improved by explicitly requiring that the forthcoming list of PAI indicators become part of the EU sustainability reporting standard.
“Whether the objective of ensuring that companies provide the data needed by financial market participants under the Disclosure Regulation will be met can only be assessed when the regulatory technical standards of the proposed Directive have been published,” it added.
Adopted by the Commission on 21 April, the proposed CSRD is intended to fix shortcomings of the existing framework for sustainability-related reporting by companies. It was quickly given the thumbs up by Efama, the European asset management lobby group, and BVI, its German counterpart, which urged for the proposal’s swift adoption.
Investors are not the only ones weighing in on the legislation, however, with the Commission noting that a second “primary group” of users consists of organisations such as NGOs and social partners.
According to PensionsEurope, however, “it is very important to recognise that the information need of other stakeholders mentioned in the CSRD proposal such as (prospective) members and beneficiaries, social partners or even NGOs, for whom sustainability-related information might be important, will be addressed by the Disclosure Regulation such that those stakeholders will receive this information according to the Disclosure Regulation.”
Applause for data portal link
Another aspect of the draft CSRD that investor groups have welcomed is the proposed link with an online data portal that the Commission is targeting as part of its CMU action plan.
As proposed by the Commission, the CSRD would require companies to digitally tag the reported information, so it is machine readable and feeds into the European Single Access Point (ESAP).
Pensioenfederatie said “we applaud” the envisioned link with the ESAP. It and umbrella association PensionsEurope said that uploading CSRD information to the ESAP would reduce costs for investors to access the information.
“This is particularly important for smaller pension funds, for which data costs represent – relatively speaking – a much higher cost than for large schemes,” they said.
Pensioenfederatie, PensionsEurope and other groups have argued that the ESAP should primarily have investors’ needs in mind, and focus on onboarding sustainability-related information first.
Elsewhere, PensionsEurope welcomed the extension of the scope of the CSRD compared with the Non-Financial Reporting Directive, saying “it helps to develop responsible investment strategies in areas where data may still be lacking, such as private equity”.
“At the same time, broad coverage of companies should not come at the expense of the depth of information,” it added.
The next steps for the CSRD are for the European parliament, and the member states in the Council, to negotiate a final legislative text on the basis of the Commission’s proposal.
In parallel, EFRAG is starting work on a first set of draft sustainability reporting standards. Earlier this month it announced a cooperation agreement with the Global Reporting Initiative.