European investors are sounding the alarm over sustainability reporting rules, the requirements of which they believe have been drastically reduced by the European Commission.
In June, the Commission published a draft of the environmental, social and governance (ESG) reporting rules that will apply to 50,000 companies in the EU. These aim to improve the information provided on twelve standards, which also cover labour-related issues such as collective bargaining and fair pay. Civil society organisations, investors and companies were given time to respond to the draft, with the final version to be submitted in August. The reaction has not been positive.
Many reporting requirements that were mandatory in the previous draft have now become voluntary. These include reporting on climate, biodiversity and transition plans. This means that companies can decide for themselves whether a requirement is “material” to them, i.e., they decide whether their operations affect nature. Investors fear that this could reduce the “consistency” of reporting, Johan Barnard, head of international public affairs at APG, one of the world's largest pension investors, told EU Observer.
If “one bicycle manufacturer decides that biodiversity is not material to them, but another does report on it,” said J. Barnard, “financial institutions will have to rely on their own calculations, and there you go, you do not get objective results!”
Countermeasures
One of the problems investors might face is how the EU’s sustainable reporting efforts actually function.
Investors and asset managers are already bound by the 2022 Sustainable Finance Disclosure Regulation (SFDR), which means they must report on the impact of their investments on biodiversity and the environment, even if the relevant companies do not.
The Dutch Federation of Pension Funds and other influential groups, including the European Fund and Asset Management Association (Efama), the United Nations Environment Programme Finance Initiative (UNEP FI), as well as 93 asset managers, have called on the Commission to “maintain the integrity of the standards”.
“We simply cannot invest sustainably if we do not know how sustainable a company is,” Matthijs Versteeg, head of the Brussels office of the Dutch Pension Federation, told EUobserver. “I would like to move to a system where we can simply rely on company reports,” noted J. Barnard.
Is it a lot?
Responding to questions, EC representatives sounded confident that it was necessary to reduce the “reporting burden”.
There must be “flexibility, especially at the beginning and especially for smaller companies,” Sven Gentner (Sven Gentner), a senior Commission official responsible for European Sustainability Reporting Standards (ESRS), told EU Observer in June. “Many told us that it is a challenge, and it is important that companies can cope with the requirements.”
It should be added that corporate lobbying to weaken the rules has been quite intense, particularly from German companies, including BMW and chemical giant BASF, as detailed by Philippe Diaz, a member of the official advisory body to EFRAG. Not everyone agrees with the Commission's view: “It is true that reporting on the impact on nature requires effort, but once a company knows how to do it, it is not that difficult at all,” Ger Jaarsma, chairman of the Dutch Pension Federation, told EU Observer.
https://euobserver.com/green-economy/157291