Eurosif to Rally Investors in Support of Ambitious CSRD

Proposed compromises will limit investors’ ability to make “critical” sustainable investment decisions.

The European Sustainable Investment Forum (Eurosif) has urged investors to call on the European Commission to reconsider proposed changes that would weaken the Corporate Sustainability Reporting Directive (CSRD). 

The pan-European associate said the Commission should retain the ambition of the original proposals of the European Financial Reporting Advisory Group (EFRAG) amid reports of substantial adjustments to the first set of the European Sustainability Reporting Standards (ESRS).  

“The financial services industry needs these disclosures to ensure their transparency and compliance with other sustainable finance rules, such as the Sustainable Finance Disclosure Regulation (SFDR), EU climate benchmarks and Pillar 3 disclosures that are already applicable at EU level,” Pierre Garrault, Senior Policy Adviser at Eurosif, told ESG Investor. 

According to Eurosif, a reduction in the ambition of the ESRS risks “undermining the effectiveness” of the CSRD and the implementation of the EU sustainable finance strategy. 

“For investors in particular, this data is critical to make informed sustainable investment decisions, and to comply with the regulatory requirements to disclose specific indicators as part of the SFDR framework,” said Garrault. 

According to some sources, the EC is contemplating removing mandatory sustainability reporting requirements, with disclosures subject to materiality assessments, representing major departure from EFRAG’s proposal.    

“The final draft sector agnostic standards (ESRS set 1) published by EFRAG in November 2022 were already the result of a compromise between all stakeholders within the EFRAG structures (EFRAG Sustainability Reporting Board (SRB) and EFRAG Sustainability Reporting Technical Groups (SR TEG),” said Garrault.  

“This final draft was already reduced by 46% compared to initial EFRAG proposals after a public consultation. Further watering down these standards, inter alia by making all disclosure requirements (apart from the optional ones) subject to materiality assessment, would both undermine the effectiveness of CSRD – which objective was to incentivise comprehensive E, S and G reporting and transparency by European companies – and the effective implementation of the EU sustainable finance strategy.” 

Garrault said investors and other financial institutions have “long been calling for detailed, standardised and comparable” corporate ESG disclosures to make informed sustainable investment decisions.

Other possible compromises include certain disclosures, in particular those relating to Scope 3 GHG emissions, biodiversity and social, being phased in over time, some for all companies in scope, some for companies with less than 750 employees. It is also expected that an increased number of disclosures will be made voluntary compared to EFRAG proposals with additional flexibility being introduced by raised thresholds and changing definitions. 

The EC is currently consulting EU bodies and Member States on the draft standards, before adopting the final standards as delegated acts in June this year, followed by a scrutiny period by the European Parliament and Council.

The forthcoming EC public consultation constitutes a “last opportunity” to influence ESRS set 1, Eurosif said.  

“The final ESRS should make sure that the environmental and social indicators for which disclosure is already required in other pieces of EU legislation (including SFDR), are disclosed by all companies subject to CSRD requirements and not submitted to a materiality assessment, to ensure consistency and reliability of the EU sustainable finance framework,” said Garrault.

“More generally, climate-related disclosures should also not be subject to a materiality assessment, as climate change is a scientific reality and is already considered material for financial markets participants and investee companies alike – the same should go for social indicators related to e.g. own-workforce.” 

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