Several industry organisations have welcomed the European Commission’s adoption of the European Sustainability Reporting Standards (ESRS). However, Principles for Responsible Investment (PRI) has called for clear, comprehensive and robust guidance on materiality assessments, so that material sustainability information is not omitted by companies.
The Commission announced yesterday that it would adopt the ESRS – rules and requirements for companies to report on sustainability-related impacts, opportunities and risks under the EU’s upcoming Corporate Sustainable Reporting Directive (CSRD), with reporting set to begin for some companies as soon as the 2024 financial year.
According to the Commission, these rules and requirements help investors, civil society organisations, consumers and other stakeholders to evaluate the sustainability performance of companies, as part of the European green deal.
“Nonetheless, there is ample evidence that the sustainability information that companies currently report is not sufficient. They often omit information that investors and other stakeholders think is important. Reported information can be hard to compare from company to company, and users of the information, such as investors, are often unsure whether they can trust it,” it stated in an announcement explaining its ESRS adoption.
More generally, the Commission said, if the market for green investments is to be credible, investors need to know about the sustainability impact of the companies in which they invest. Without such information, money cannot be channelled towards environmentally friendly activities.
”That is why, in line with the Corporate Sustainability Reporting Directive (CSRD), which outlines the obligation for companies to use standards to fulfil their legal sustainability reporting obligations, the Commission is adopting common standards which will help companies to communicate and manage their sustainability performance more efficiently and therefore to have better access to sustainable finance,” it announced.
Richard Howitt, who proposed the EU’s first rules on sustainability reporting in the European Parliament and subsequently led global efforts for international voluntary sustainability reporting frameworks to merge, said: “The further moves in the announcement to ensure the new European standards will be more interoperable with the global approach of the International Sustainability Standards Board will be broadly welcomed.
“This is the future for business sustainability. I expect many companies to begin the process of alignment across all the new standards, even before they are formally required to do so.”
Calling for clear materiality assessments
PRI has also welcomed the Commission’s adoption of ESRS. However, PRI’s EU policy head Elise Attal said: “This is an important stepping stone towards investors having access to the data they need to assess sustainability risks, opportunities and impacts. The requirements on companies to explain why they have deemed climate change to be non-material, and hence not worth disclosing, and to explicitly state which datapoints deriving from the SFDR are non-material, are important to improve transparency of materiality assessments.”
Nevertheless, Attal said that the Commission’s decision to subject all issue-specific reporting to a materiality assessment might not guarantee investor’s access to the consistent and reliable information they urgently need to allocate capital in line with sustainability goals and meet mandatory reporting obligations, such as the SFDR.
“The European Commission should commit to making key climate disclosure indicators and environmental and social indicators relevant to SFDR mandatory to disclose in the first review of this delegated act in 2026. In the meantime, it should provide clear, comprehensive and robust guidance on materiality assessments, so that material sustainability information is not omitted by companies,” she explained.
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