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The European Commission may be at risk of losing its leadership role on sustainable finance to the detriment of the commitments it made in the EU Green Deal and fail to meet investor demands to set clear standards, address greenwashing and ensure comparability between companies in their sustainability disclosures.
Recent developments over the adoption of European Sustainability Reporting Standards (ESRS) reveal a misalignment between the EU and the IFRS Foundation’s visions of what mandatory corporate sustainability disclosures should be about, which is threatening the integrity of a cornerstone EU legislation in this field – the Corporate Sustainability Reporting Directive (CSRD), industry officials have warned.
The Purpose of the Corporation Project – a Frank Bold initiative supported by the Charles Leopold Mayer Foundation for the Progress of Humankind, the Friends Provident Foundation, the Joseph Rowntree Charitable Trust, and the Wallace Global Fund – has produced a report noting how the commisison is being pressured to give up its ambition to define its own sustainability standards.
Background
On 5 January 2023 the CSRD entered into force, modernising and strengthening the rules concerning the social and environmental information that companies have to report. A broader set of large companies, as well as listed SMEs, will now be required to report on sustainability – approximately 50,000 companies in total.
The new rules will ensure that investors and other stakeholders have access to the information they need to assess investment risks arising from climate change and other sustainability issues.
They will also create a culture of transparency about the impact of companies on people and the environment. Finally, reporting costs will be reduced for companies over the medium to long term by harmonising the information to be provided, accoridng to the Commission.
The first companies will have to apply the new rules for the first time in the 2024 financial year, for reports published in 2025.
Companies subject to the CSRD will have to report according to ESRS, of which draft standards are developed by the European Financial Reporting Advisory Group (EFRAG), an independent body bringing together various different stakeholders.
The standards will be tailored to EU policies, while building on and contributing to international standardisation initiatives...
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