ESG In The Banking, Financial And Insurance Sectors – ESAs Opinions On European Sustainability Reporting Standards – Financial Services

ON 26 JANUARY 2023, THE ESAS (ESMA, EIOPA, AND EBA) PUBLISHED
THEIR RESPECTIVE OPINIONS ON THE FIRST SET OF EUROPEAN
SUSTAINABILITY REPORTING STANDARDS.

On 26 January 2023, the European Insurance and Occupational
Pensions Authority (“EIOPA”), the
European Securities and Markets Authority
(“ESMA”) and the European Banking
Authority (“EBA”, together with EIOPA
and ESMA, the “ESAs”) published their
respective opinions on the first set of European Sustainability
Reporting Standards (“ESRS Set 1”)
submitted by the European Financial Reporting Advisory Group
(“EFRAG”).

The opinions follow a request made by the EU Commission to each
of the ESAs to assess, in particular, the consistency of ESRS Set 1
with the provisions of Regulation (EU) 2019/2088
(“SFDR”) and its related delegated
acts.

1. Background

ESRS Set 1 specifies the rules and requirements regarding the
reporting on sustainability-related aspects under the Corporate
Sustainable Reporting Directive
(“CSRD”).

2. Key considerations

2.1 EIOPA opinion

EIOPA considers that ESRS Set 1 overall meets the objectives of
promoting the disclosure of high quality material sustainability
information, facilitating interoperability with other EU
legislation and global standards, and being conducive to consistent
and proportionate application by undertakings.

EIOPA notes, however, that some aspects could be enhanced:

• Clarification of:
  

  • the “information that would be prejudicial to the
    commercial position of the undertaking if disclosed” and how
    to identify it;

  
  

  • the boundaries of the value chain for insurers and pension
    funds to ensure that the material sustainability impacts can be
    reported in a proportionate and risk-based manner; and

  
  

  • the extent of the expected assurance operations ahead of the
    first reporting under the CSRD.




• Streamlining the definition of “materiality” in
  accordance with that provided in IFRS S1 General Requirements for
  Disclosure of Sustainability-related Financial Information.




• Fostering comparability with certain SFDR-related indicators
  and continued dialogue among all relevant stakeholders would be
  beneficial to ensure consistent and coherent implementation.




• Avoidance of the fragmentation of sustainability reporting
  requirements across jurisdictions and ensuring compatibility
  between ESRS and IFRS.

2.2 ESMA opinion

ESMA finds that ESRS Set 1 broadly meets the objective of being
conducive to investor protection and not undermining financial
stability.

ESMA draws attention to the need to:

• Add further details to the materiality assessment sequence and
  clarify the level of detail the undertaking should adopt when
  providing the required information.




• Clarify how the materiality thresholds should be set once the
  sustainability matters have been ranked according to their
  severity.




• Closely monitor developments at the regulatory level so as to
  adapt the ESRS accordingly.




• Separate the disclosures of impacts, risks, and opportunities
  in the disclosure requirements, to align with international
  reporting standards.




• Replace wording such as “shall disclose”,
  “shall consider”, “shall consider
  disclosing”, and “may disclose” with “shall
  disclose” (for mandatory disclosure) and “may
  disclose” (for optional disclosure).

2.3 EBA opinion

EBA acknowledges the overall consistency of ESRS Set 1 with
international standards and any other relevant EU law and welcomes
the extent of alignment with the Pillar 3 disclosure requirements
reached at this stage.

EBA emphasises, however, a few aspects that merit further
consideration by the EU Commission, including:

• Dedication of resources and time to the development of the
  sector-specific standards for credit institutions in order to
  develop a dedicated reporting framework for credit
  institutions.




• Close monitoring of IFRS developments – both before and after
  the adoption of ESRS Set 1.




• A request to EFRAG to provide further guidance in order to
  improve the practical implementation of the materiality
  assessment.




• Further clarification of how the definition of value chain
  applies to credit institutions (i.e. what are the boundaries of the
  value chain and the affected stakeholders).




• Substitution of “shall consider” and the alignment
  of all ESRS Set 1 terminology with that used in the Accounting
  Directive (e.g. “joint venture”,
  “associates”).

3. Next steps

ESRS Set 1 is expected to be adopted by the EU Commission
via delegated acts by 30 June 2023, after the Commission
has considered the opinions published by the ESAs, as well as those
submitted by other public bodies.

Complying with and adapting to the ever-evolving ESG framework
is a constant challenge – please, contact our experts to help
you to meet this challenge and stay ahead of the game.

To read EIOPA’s opinion,
click here_

To read ESMA’s opinion,
click here_

To read EBA’s opinion,
click here_

To read ESRS Set 1, click here_

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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