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November 2, 2022

Campaign groups denounce ‘strong pressure’ to water down EU sustainability reporting standards

In a joint letter to the European Commission, trade and civil society groups have cited “political pressure” and “narrow business interests” as a risk to Europe’s sustainability agenda.

A group of 37 think-tanks and environmental and social campaigners have written to EU financial services commissioner Mairead McGuinness expressing concern that political and business interference is hindering the bloc’s progress in the finalisation of much-awaited sustainability disclosure standards.

The group, which includes ShareAction, E3G and CDP, the non-profit running a sustainability disclosure system, oppose the prioritisation of certain sustainability matters over others, and warn against an arbitrary reduction of disclosure requirements.

In the joint letter, signatories said that over “the last few weeks and months, strong pressure has been directed to the European Commission to slow down the pace and ambition of mandatory EU sustainability reporting standards” and concluded with an “appeal to the European Commission to uphold the legal mandate agreed in the [Corporate Sustainability Reporting Directive] and not give in to political pressure and narrow business interests that aim to hinder EU progress in the finalisation of much-awaited EU standards.”

The EU’s CSRD is set to apply from 2024 and will require companies to publicly disclose information about their sustainability risks and opportunities. CSRD amends the current Non-Financial Reporting Directive and will require companies to follow the EU’s sustainability reporting standards. Current proposals for the standards are based on the principle of double materiality, which stipulates both ESG risks to companies and the impact of business activities on communities and the environment must be considered.

The signatories praised the transparency and engagement efforts by EU institutions but also said these had been used “to create alarm or criticise procedural elements”.

Kate Levick, associate director for sustainable finance at climate think-tank E3G, a signatory, said of the EU’s leadership on corporate sustainability reporting: “The proposals have received a substantial volume of comments; of these, some were based on sound practical considerations while others sought to create delay or weaken ambition.”

While the letter notes that “in recent months, certain business associations have argued that the standards will be expensive and burdensome and have called to limit them to the bare minimum”, it does not specify which associations.

The signatories countered that a cost-benefit analysis commissioned by the European Financial Reporting Advisory Group found the additional costs to the economy of complying with the standards would be “marginal”.

They also urged support for international alignment on sustainability reporting but not at the cost of lowering the EU’s sustainability ambitions. The proposals of the International Sustianability Standards Board, created by accounting standard-setter IFRS, focus on financial materiality rather than on the concept of double materiality.

“International standardisation and a level playing field are in the interest of the EU, but they must not come at the price of lowered ambitions or de-prioritising certain governance, environmental or social disclosures,” says the letter.

Photo credit: Getty Images

A service from the Financial Times