European Parliament enhances corporate transparency

Today, the European Parliament successfully fended off efforts to reject the European Sustainability Reporting Standards (ESRS), a key legislative piece to ensure the effective application of the Corporate Sustainability Reporting Directive (CSRD) and the transitioning efforts in the context of the Green Deal. A majority of 359 Members of the Parliament voted against a motion to reject the ESRS and its replacement with an emptied and diluted piece of legislation.

“The cross-party support confirms how critical role transparency plays in the EU sustainability framework and in enabling sustainable finance to flow to climate transition. It is encouraging to see that MEPs trust the technical, multistakeholder process to develop the standards in EFRAG” commented Filip Gregor, head of Responsible Companies’ section at Frank Bold.

The motion to reject the proposed standardisation of sustainability data was brought by a group of German EPP and Renew members of the Parliament, who ignored calls from financial market participants and other stakeholders outlining the need  for sustainability information being promptly available in order to comply with other pieces of legislation. The support to the motion was provided primarily by ID and ECR groups. 

Notably, a number of MEPs from the EPP did not support the group’s line of vote and the vast majority of Renew rejected the motion. The motion was based on the arguments that reporting translates into an overwhelming burden and that the standards are overly complex and extensive, which does not meet reality. In fact, only 0.2% of EU companies fall under the scope of this directive, and the implementation costs are estimated to range between 0.017% to 0.034% of companies' turnovers. In comparison to other reference standards, namely the new IFRS sustainability standards, the actual number of disclosure datapoints per standard is roughly the same. 

By requesting the reduction of reporting standards, this initiative failed to consider the ratio of the legal piece. Sustainability reporting is already a business reality, and standardisation serves to simplify the process. Without standardisation, companies not publishing sustainability information would increasingly face demands from financial institutions to report it in multiple non-standardized ways, causing additional burden and uncertainty. The ESRS, by covering a wide range of ESG topics, provide enough legal certainty for different activities while creating a rich and comprehensive technical piece of legislation for jurisdictions worldwide.

After today’s session, the EU once again has emerged as a global leader in sustainable finance and corporate transparency, setting an aspiring high bar for other jurisdictions to follow. The set 1 of ESRS, which will apply from January 2024,  provides a vital framework for transparency in climate and circular economy transition, human rights, and biodiversity. In light of the hottest summer on record and the crossing of six out of nine planetary boundaries, the Parliament  confirmed today the EU's ambition of building a better economy that prioritises environmental respect and protection while ensuring social fairness. 

Now and until the end of the scrutiny period the Delegated Act is still to be discussed in the Council of the EU.