Over 60 companies and investors in Europe had signed the CPD’s open letter on maintaining ambitious European Sustainability Reporting Standards on 6 February. The ESRS are a key component of the Corporate Sustainability Reporting Directive, and allow ESG and corporate responsibility disclosure to be reported in a standardised and more consistent format.
These standards will impact about 50,000 companies active in the EU, so ahead of the adoption of the first ESRS by the EU commission, “it was the moment for CDP to take action, to support our 8-year-long work, because we know that there is a lot of industry push back generally speaking on these standards,” Mirjam Wolfrum, policy engagement director told Delano during an interview.
The key thing for the businesses that signed this letter is that they want to see more and better disclosure. And they want to see this happen quickly.
For the CDP, which aims to drive transparency in the market, “the key thing for the businesses that signed this letter is that they want to see more and better disclosure. And they want to see this happen quickly,” says Wolfrum. The letter calls for the European Commission to swiftly adopt the by its technical adviser Efrag, without lowering any of the standards.
A consequence of the democratic process
Why does the CDP worry that the EU commission might review the sustainability standards proposed by Efrag ahead of their adoption? “We’ve been around for a while, we see the reactions of the market throughout the entire process--this is part of the democratic process,” says Wolfrum. “There is usually quite a big push back from the industry or certain industry groups who do not want to see higher level disclosure requirements, which will impact their own businesses.”
We know that there are lobbies that want the ESRS text to have a much smaller impact to go down to what the International Sustainability Standards Board is proposing--namely the single materiality reporting.
But, in order to reach net zero and a regenerative economy, “you need to harmonise toward the highest ambition,” Laurent Babikian, CDP capital markets director, stated in the interview. “This will probably not be the case because when you have international agreements, they tend to take the lowest ambition.”
“We know that there are lobbies that want the ESRS text to have a much smaller impact to go down to what the International Sustainability Standards Board is proposing--namely the single materiality reporting, which contains very limited information, is easy to produce and is very good for a company’s market valuation,” says Babikian.
Single materiality looks at the impact of climate change on corporate and financial activities, whereas double materiality also looks at the impact of a company on climate change. Of course, applying double materiality, like the EU does, “will have a more negative impact on a company’s market valuation,” but, to avoid distortions in the market, it is essential for companies to “follow the same rules,” he said.
The EU is the perfect place to move from ambition on paper to implementation on the ground.
The EU as a testing ground
“We have to decide now if we want to adopt the rules that bring us closer to net zero and a regenerative economy, or if we want to follow the path of ‘business as usual’?” questions Babikian. The EU, says Wolfrum, “is the perfect place to move from ambition on paper to implementation on the ground.”
“We would like to see very ambitious corporate reporting requirements in the EU because we as investors need that information to actually fulfil our own reporting requirements under the EU taxonomy and the SFDR,” concludes Wolfrum. “The EU has a fantastic opportunity to close the loop and to start to get data in and doing serious analysis for further improvements.”
“Luxembourg has a lot of money, and the carbon footprint of that money is massive. So that’s a very good reason why Luxembourg should start working on [its reporting disclosure] as an investor.”
Though Luxembourg signatories don’t feature on the list published in February, it could be interesting for the country as a financial centre. Inversely, the country could play an important role due to only the funds it holds but also the impact it has on the environment. To put it bluntly, as Babikian says: “Luxembourg has a lot of money, and the carbon footprint of that money is massive. So that’s a very good reason why Luxembourg should start working on [its reporting disclosure] as an investor.”
This article was published for the Paperjam+Delano Finance newsletter, the weekly source for financial news in Luxembourg. . Read the original of this interview on the Paperjam site.