EU rules on corporate sustainability reporting must not be watered down
Nine German organizations criticize the EU Commission
for attempting massive weakening of the dated
Expert:inner committee recommended ambition of
European sustainability reporting standards
In a joint letter, nine German organizations from the environmental and economic sectors – including the WWF, NABU and Germanwatch – plead with the federal government and the EU Commission not to water down the European Sustainability Reporting Standards (ESRS) any further. The level of ambition recommended by the expert panel EFRAG must be restored, especially since it is also supported by companies and business associations. The letter comes in the final days of the public consultation on the ESRS Delegated Acts, which implement the requirements of the Corporate Social Responsibility Directive (CSRD).
The ESRS are intended to create uniform rules for the sustainability reporting of companies in the EU. Specifically, these are requirements for the disclosure of data. For example, the effects of companies on biodiversity and ecosystems, pollution or the progression of the climate crisis should be reported. On the one hand, this data is extremely important for consumers and financial market players in order to be able to assess the social and environmental actions of companies. On the other hand, it provides the companies themselves with the key figures to further develop the business model in a sustainable manner.
“The ESRS are a central element of the European sustainable finance strategy. In the future, they will create comparability between companies. However, this will only succeed if the unacceptable debuffs are reversed,” says Philippe Diaz from the WWF.
Over the past two years, the EFRAG panel of experts has worked out a compromise between different stakeholder groups, which in many respects represents an appropriate and science-based draft for the ESRS. “However, the EU Commission has now largely gutted the experts’ proposals for reporting standards. Companies can now assess for themselves which data they consider essential. Even for climate data, which is essential for every company, there will then no longer be a binding reporting requirement,” says Yanika Meyer-Oldenburg, officer for climate-compatible financial flows at the environmental and development organization Germanwatch.
Instead, companies should now carry out a materiality analysis for each area, which determines whether the area is relevant to the company or not. “The results of the analysis no longer even need to be explained, as originally intended. A lack of specifications offers a great deal of room for interpretation as to how companies apply the reporting obligations. This makes comparability more difficult and makes it more difficult for companies to credibly present their sustainability efforts,” says Meyer-Oldenburg.
“Based on the reported data, it should be possible to understand in future whether a company is aligning its business areas in a socio-ecological and future-proof manner. This will make purchasing and investment decisions easier. For companies themselves, too, the collected data offers valuable added value for corporate management and long-term strategic orientation,” says Max Kolb from the German Nature Conservation Union (NABU).
“The mitigations that have now taken place not only have negative consequences for the environment, but also pose a real problem for financial market players. In some cases, the weakening of the ESRS means that they do not receive important data that they need to assess the risks of the companies concerned . Where the financial market is supposed to get this data from is currently completely unclear,” criticized Meyer-Oldenburg from Germanwatch. As with the environmental indicators, similar restrictions have also been placed on corporate social responsibility reporting.
“It is to be welcomed that the Commission has decided against a climate-first approach – in addition to climate indicators, other sustainability indicators must also be reported,” emphasizes Philippe Diaz from the WWF. “In 2023, seven of the eight planetary limits will already have been exceeded. It is therefore crucial not to reduce the ecological crisis to climate change, but to see it holistically. “It is good that this is also reflected in the rules for sustainability reporting.”
“In view of the great importance of a holistic and transparency-creating disclosure regulation, the nine associations jointly appeal to the Federal Government and the EU Commission to take up our concerns,” emphasizes Max Kolb.
Note for editors: The signatories to the letter are BAUM eV, Federal Association for Sustainable Economy eV, CDP Europe, Climate & Company, Germanwatch eV, Global Nature Fund, NABU eV, urgewald eV and WWF Germany.
Full text of the open letter: