Sustainability reporting rules for European companies were finalized by the European Commission Monday despite investor concerns that they give companies too much discretion on what to report.
The new European Sustainability Reporting Standards that go into effect in 2024 require large companies and companies listed in Europe to regularly report on climate and other ESG risks and impacts, and how those affect companies financially.
When the rules were proposed in June, a coalition of investors, asset managers and bankers called on the European Commission to reconsider changes that allow companies to decide if specific ESG issues are material enough to their businesses to report, instead of making them mandatory.
Coalition members, including Eurosif - The European Sustainable Investment Forum and the U.N. Principles for Responsible Investment, warned at the time that it would limit investor access to comparable and reliable information needed for investment decisions.
That warning went unheard, said Aleksandra Palinska, executive director of Eurosif, in a statement Monday. "Investors need specific corporate disclosures to allocate capital in line with EU Climate Law and Green Deal objectives and to prepare their own sustainability-related disclosures. We are counting on the reporting companies to consider these disclosures, elaborated in the joint investor statement, as always material. This is essential for the success of the EU sustainable finance framework."
The European Commission said in its statement that the final rules avoid overburdening companies while giving investors the information to understand companies' sustainability impact. They also ensure "a very high degree of interoperability" with global standards like those from the International Sustainability Standards Board and the Global Reporting Initiative, the EC said, while also promising to scrutinize how companies assess materiality.
The EU Parliament and Council will have two months to review the new rules, which also phase in reporting requirements for Scope 3 emissions, biodiversity-related issues and workforce data for some companies.