The European Insurance and Occupational Pensions Authority (EIOPA) has published today its Opinion on the European Financial Reporting Advisory Group’s technical advice concerning European Sustainability Reporting Standards (ESRS) following the request of the European Commission.
In this first Opinion, EIOPA assesses whether the draft ESRS promote the disclosure of high-quality material sustainability information, whether the standards facilitate interoperability with other EU legislation and global standards, and, finally, whether they are conducive to a consistent and proportionate application by undertakings.
Overall, EIOPA considers that the draft ESRS meet the above objectives even though some aspects can be enhanced upon.
In particular, EIOPA welcomes the general approach on the materiality assessment and the mandatory disclosure requirements that are crucial for financial market participants to calculate and report their principle adverse impact indicators under the Sustainable Finance Disclosure Regulation (SFDR). Nonetheless, EIOPA is of the opinion that more clarity is needed on the boundaries of the value chain for insurers and pension funds so that relevant material sustainability impacts may be reported in a proportionate and risk-based manner.
Regarding consistency with EU sectoral standards, EIOPA notes that further guidance may be necessary to foster comparability with certain SFDR-related indicators and that a continued dialogue among all relevant stakeholders would be beneficial to ensure consistent and coherent implementation. It is also crucial that any upcoming amendments to the SFDR Delegated Regulation be reflected in ESRS.
Concerning international standards, EIOPA underlines the importance of avoiding the fragmentation of sustainability reporting requirements across jurisdictions. To this end, compatibility between ESRS standards and IFRS standards should be ensured so that European companies reporting according to ESRS are automatically considered to be compliant with the IFRS sustainability reporting framework.
Notes and background
The European Commission also requested an opinion from the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA). Their respective opinions are available here and here.
EIOPA’s initial comments on EFRAG’s exposure drafts, published in December 2022, are available here.
The European Sustainability Reporting Standards, once final and adopted, will set out what sustainability-related information companies falling under the scope of the Corporate Sustainability Reporting Directive (CSRD) will be required to report. The CSRD will apply, progressively, as of 2024 and will require all large and listed companies (except micro-companies) to disclose information on the environmental, social and governance risks that their business is exposed to and on how their business impacts people and the environment.