Dozens of major investors press EU lawmakers for robust sustainability reporting mandate

The investors wrote to EU lawmakers late last week, raising concerns about proposals to weaken parts of the new European Sustainability Reporting Standards (ESRS).

Unless these standards require mandatory and detailed disclosures on things such as emissions and climate risks, their letter warns, investors will not be able to access the “consistent, comparable and reliable” data they need to make decisions.

The investors’ letter states: “Moving away from mandatory reporting of certain indicators risks undermining the EU’s status as a global leader on sustainable finance and its ability to attract capital at a time when other nations and regions are making significant progress in establishing their own sustainability frameworks.”

The investors are urging lawmakers to agree on Standards for large businesses which mandate the disclosure of emissions across all scopes, including Scope 3 (indirect) emissions.

Such businesses should also be made to produce climate transition plans, in the investors’ opinion.

The ESRS should also, the letter states, require businesses that do not deem certain environmental and social topics as material to them to explain their position. Otherwise, they may get away with omitting important information.

Biodiversity is raised as a key topic here. The letter states that businesses should be given clear guidance on publishing biodiversity transition plans on a voluntary basis, ahead of mandatory nature impact reporting. This will be mandated by 2030, per the global UN biodiversity treaty agreed upon late last year. The treaty’s headline aim is to halt nature loss this decade and restore nature at scale through to 2050.

The fact that new science-based targets for nature now exist should make transition planning easier for businesses. Moreover, the Task Force on Nature-Related Financial Disclosures (TNFD) is due to finalise its framework later this year. This will provide businesses with guidelines on measuring and disclosing their nature-related risks both presently and in the future.

Interoperable standards

As the letter concludes, the investors note the importance of not over-burdening businesses with differing sustainability reporting requirements.

It implores lawmakers to ensure that the ESRS is interoperable with standards such as those produced by the International Sustainability Standards Board (ISSB) to “reduce fragmentation across the global reporting landscape”.

This could also be an opportunity to push for global standards to be more ambitious, the letter notes. For example, the EU could advocate for the principle of double materiality to be adopted in other geographies.

More than 90 investors and counting have signaled their support for the letter. They have been convened by key sustainable finance organisations including the UNEP FI, the Institutional Investors Group on Climate Change (IIGCC), the Principles for Responsible Investment (PRI), Eurosif and the European Fund and Asset Management Association.

The EU has just finished consulting on its latest ESRS draft. It is aiming for the final Standards to come into effect from 1 January 2024.