The European Commission’s formal adoption of the updated European Sustainability Reporting Standards (ESRS) marks another major step forward in sustainable regulation.
It comes soon after the International Organisation of Securities Commissions endorsed sustainability-related financial disclosure standards issued by the International Sustainability Standards Board (ISSB).
With the adoption of the ESRS on July 31, all companies subject to the European Union’s Corporate Sustainability Reporting Directive – chiefly major and listed enterprises – will be required to disclose details of their social and environmental impact.
Mairead McGuinness, commissioner for financial services, financial stability and capital markets union, describes the ESRS as “ambitious” and an “important tool underpinning the EU’s sustainable finance agenda”. The ISSB, which consulted closely on the new standards, has already confirmed a “high degree of climate-disclosure alignment” between its standards and the ESRS.
Not everyone is so positive. According to the World Wildlife Fund, the European Commission “undermines standards for corporate sustainability reporting under industry pressure”. Although the WWF is known for being far less stridently alarmist than other pro-sustainability groups, Philippe Diaz, senior manager for sustainable finance at WWF Germany, accused the Commission of caving to pressure from conservative industry groups and weakening the ESRS “ to the point that loopholes have become motorways for greenwashing. This is a serious betrayal of trust”.
In particular, the WWF called for closure of the loophole that makes reporting on biodiversity transition plans optional, and for companies to be required to explain what makes particular factors material to them. It also wants mandatory disclosure to be brought up to the same standards as for other relevant EU legislation, and removal of reporting delays for companies with less than 750 employees.
In its comments on the regulations to the European Commission in early July, the EDHEC-Risk Climate Impact Institute also criticised them for not observing the same standards as other European sustainability reporting regulations. It urged the regulators to “require all climate-related disclosures from all reporting entities”, and if materiality is an issue, at least require entities to declare why they deemed some issues material or not.
That said, the various declarations of interoperability between the ESRS and the international standards may be sufficient cause for hope in that the former are already likely to be adopted by most European bourses, as elsewhere.
Furthermore, climate change denialists in Europe are increasingly struggling in the face of record-breaking heatwaves and rampant wildfires in the south of the continent. Events on the ground – or rather, the scorched earth – may compel real climate change mitigation measures far sooner than the ESRS would.
