Sustainability reporting experts and NGOs welcome the adoption of the EU sustainability reporting standards (ESRS) by EFRAG submitted this week to the European Commission. Whilst the ambition of the ESRS remains limited in several areas, they represent a major improvement for companies as well as for users of sustainability information and address the biggest problems in quality and reliability of corporate reporting.
The ESRS will provide a common European framework on corporate disclosure. They are indispensable to get relevant and reliable reporting on companies’ climate transition plans and their alignment with the 1.5°C goal, the exposure of companies to sustainability-related financial risks, as well as to actual and potential severe impacts on people and the environment in the value chain, and companies’ management of such impacts and risks, among others. This is essential to help investors, consumers, financial institutions and, in fact, society as a whole, to make the switch to a sustainable economy that operates within planetary boundaries.
Following the legal mandate provided by the EU Corporate Sustainability Reporting Directive (CSRD), the EU must develop and adopt standards covering all sustainability areas, in line with the broader EU policy framework, including sustainable finance legislation, EU Climate Law and the bloc’s objectives and commitments on climate, nature and human rights. The EU standards are urgently needed to tackle major gaps [1] on the quality, consistency and comparability of corporate disclosures and provide a comprehensive picture of companies’ management of their risks and impacts on people and planet.
The standards have been developed in an extensive and transparent multistakeholder process, and were approved without a dissent by EFRAG’s Sustainability Reporting Board, which includes representatives of Accounting Standards Committee of Germany, the Autorité des Normes comptables of France, the Dutch Accounting Standards Board, Organismo Italiano di Contabilità (OIC), as well as European stakeholders including Accountancy Europe, European Issuers, EFAMA, European Banking Federation, and representatives of civil society and of the European Trade Union Confederation, among others.
Whilst we would appreciate a greater level of ambition on a number of sustainability issues, we welcome the following key aspects:
With regards to the matters that must be protected from political pressure and further developed in sector-specific standards in future:
The proposed ESRS lay down an urgently needed baseline for sustainability reporting which is aligned with international standards and addresses the most pressing conceptual and methodological challenges companies are facing. Therefore, we call for the adoption of the ESRS framework by the European Commission and endorsement by the EU Parliament and Member States. We warn against further cuts into the proposed standards, which would severely undermine its functionality and hinder EU’s efforts to create a more sustainable and just economy.
[1] For example in the studies published by the Alliance for Corporate Transparency, 32% of the analysed corporations in 2021 obliged to report under the Non-Financial Reporting Directive disclosed their full GHG emissions, 39 % reported their climate targets and 28 % claimed the targets to be science-based or aligned with the Paris Agreement goals. Another recent study from World Benchmarking Alliance shows that 37% of leading financial institutions assessed have disclosed long-term net-zero targets. However, from these commitments, only 2% have been translated into interim targets applied across the institution’s financing activities, of which only 1% are backed by scientific evidence.
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