PensionsEurope and EFAMA warn against slashing sustainability rules

PensionsEurope has urged EU lawmakers not to weaken the bloc’s sustainability reporting rules, and to pause a review of the Sustainable Finance Disclosure Regulation (SFDR) until there is clarity on the future of the green taxonomy.

The trade association today published its official position on the EU’s ‘omnibus package’, which seeks to cut back Europe’s sustainability disclosure and due diligence requirements to make them more business friendly.

While PensionsEurope agreed that current reporting obligations are too burdensome, it warned that some of the proposals being put forward by policymakers could “undermine” investor efforts to manage sustainability risks and comply with EU laws themselves.

The European Commission has proposed slashing the number of companies covered by the Corporate Sustainability Reporting Directive (CSRD) by around 80%, so that only those with more than 1,000 employees would be included.

PensionsEurope said the plans posed “a serious risk to the quantity and quality of ESG data available to investors for informed decision-making”.

“While it is true that many listed companies with over 1,000 employees – who make up a significant share of institutional portfolios – would remain within scope, this is less the case for certain asset classes such as private equity” it noted.

The paper described private equity as “increasingly important in advancing responsible investment practices” and said reduced data availability because of changes to CSRD “could hinder its progress”.

PensionsEurope also highlighted the risk of divergence between different laws, saying that if CSRD and the EU’s Taxonomy Regulation are weakened as planned, pension funds and their asset managers will be forced to rely on estimates in order to comply with SFDR.

“This reliance not only raises costs but also increases dependence on large non-EU ESG data providers,” it warned.

To prevent this, PensionsEurope said the Omnibus process should be fully wrapped up before the Commission continues with its work on redesigning SFDR – a legislative initiative that is currently happening in parallel, with a public consultation closing last week.

EFAMA’s position

The position paper echoes concerns expressed by fellow lobby group the European Fund and Asset Management Association (EFAMA) recently in its omnibus position.

It warned that the Commission’s plan to slash the number of companies covered by the CSRD “could significantly diminish the availability of useful ESG data for investors”.

“Simplification must not come at the expense of cutting information on material sustainability risks, opportunities, and impact that is essential for investors and asset managers,” EFAMA wrote.

“Doing so would undermine the asset management industry’s commitments to the European Green Deal, especially at a time when limiting global warming to 1.5°C becomes increasingly challenging.”

Instead, it suggested, CSRD should be revised to focus on “decision-useful data through a double materiality lens”.

Rather than carving companies out of the rules, lawmakers should cut “a significant number of non-decision-useful ESRS data points” argued EFAMA, referring to the European Sustainability Reporting Standards (ESRS).

It issued a similar warning over plans to reduce the scope of mandatory reporting against the Taxonomy reporting.

The removal of companies from both sets of report rules may result in asset managers needing to buy in “sometimes opaque and increasingly expensive” ESG data, EFAMA said.

It also urged EU rule-makers to clarify that asset managers aren’t required to include their assets under management as part of their own CSRD reporting, and expressed its support for the Commission’s plan to remove a commitment to consider adding investment activities into CS3D in the future.

Finally, it said that any modifications to the CSRD and Taxonomy should be reflected in the SFDR, which is currently under review, as well as the Markets in Financial Instruments Directive (MiFID II).

NBIM welcomes omnibus

Elsewhere, in a letter to the European Financial Reporting Advisory Group (EFRAG), the body responsible for advising the Commission on its update of ESRS, Norges Bank Investment Management (NBIM) said it “strongly welcome[d]” the moves to simplify the reporting rules.

In instances where there is overlap, it called for CSRD and ESRS to adopt “identical terminology and metrics” to those used by the International Sustainability Standards Board and the Sustainability Accounting Standard Board.

NBIM also wants the Commission to streamline the structure of the ESRS to avoid duplications.

“Additionally, it is important to us that during this simplification process, an appropriate balance is maintained between environmental, social, and governance disclosure requirements,” it said.

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