Today, the European Parliament successfully fended off efforts to reject the European Sustainability Reporting Standards (ESRS), a key legislative piece to ensure the effective application of the Corporate Sustainability Reporting Directive (CSRD) and the transitioning efforts in the context of the Green Deal. A majority of 359 Members of the Parliament voted against a motion to reject the ESRS and its replacement with an emptied and diluted piece of legislation.
“The cross-party support confirms how critical role transparency plays in the EU sustainability framework and in enabling sustainable finance to flow to climate transition. It is encouraging to see that MEPs trust the technical, multistakeholder process to develop the standards in EFRAG,” says Filip Gregor, head of Responsible Companies’ Team at Frank Bold.
The motion to reject the proposed standardisation of sustainability data was brought by a group of German EPP and Renew members of the Parliament, who ignored calls from financial market participants and other stakeholders outlining the need for sustainability information being promptly available in order to comply with other pieces of legislation. The support to the motion was provided primarily by ID and ECR groups.
Notably, a number of MEPs from the EPP did not support the group’s line of vote and the vast majority of Renew rejected the motion. The motion was based on the arguments that reporting translates into an overwhelming burden and that the standards are overly complex and extensive, which does not meet reality. In fact, only 0.2% of EU companies fall under the scope of this directive, and the implementation costs are estimated to range between 0.017% to 0.034% of companies' turnovers. In comparison to other reference standards, namely the new IFRS sustainability standards, the actual number of disclosure datapoints per standard is roughly the same.
By requesting the reduction of reporting standards, this initiative failed to consider the ratio of the legal piece. Sustainability reporting is already a business reality, and standardisation serves to simplify the process. Without standardisation, companies not publishing sustainability information would increasingly face demands from financial institutions to report it in multiple non-standardized ways, causing additional burden and uncertainty. The ESRS, by covering a wide range of ESG topics, provide enough legal certainty for different activities while creating a rich and comprehensive technical piece of legislation for jurisdictions worldwide.
After today’s session, the EU once again has emerged as a global leader in sustainable finance and corporate transparency, setting an aspiring high bar for other jurisdictions to follow. The set 1 of ESRS, which will apply from January 2024, provides a vital framework for transparency in climate and circular economy transition, human rights, and biodiversity. In light of the hottest summer on record and the crossing of six out of nine planetary boundaries, the Parliament confirmed today the EU's ambition of building a better economy that prioritises environmental respect and protection while ensuring social fairness.
Now and until the end of the scrutiny period the Delegated Act is still to be discussed in the Council of the EU.
We have analysed hundreds of pages of technical documents and prepared a comprehensive overview of the sustainability reporting requirements under the forthcoming EU legislation. We summarise what ESG data will be critical for companies, banks, and investors in sustainability strategy and management and in the areas of climate change, environment, sustainable activities, employees and supply chains, due diligence, and anti-corruption measures.
Would you like to influence key EU developments on business, sustainability and climate change? Do you wish to combine environmental and economic perspectives? Do you want to help set European standards for transparency of corporate sustainability performance and help investors finance the transformation of our economy? Become a member of Frank Bold’s international team implementing this strategy.
Leading NGOs working on corporate sustainability and sustainable finance have published a briefing with key recommendations to help clarify directors’ responsibilities to oversee sustainability that fully fit with existing company law and corporate governance frameworks across Europe.
