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Ensuring alignment between the Disclosure Requirements of Investee Companies and the Sustainable Finance Obligations

Sustainability reporting (NFRD)
07 July 2023 | Policy Position
Sustainability reporting (NFRD)
Representation of balancing sustainability and money

The draft ESRS Delegated Act presents several potential implications for investors and entails major inconsistencies across the Sustainable Finance legislative framework. In our policy paper we focus on the alignment of ESG reporting on two crucial areas: (1) the requirements of the Sustainable Finance Disclosure Regulation (SFDR), notably the Principal Adverse Impact indicators (PAIs), and (2) the Transition Plans and targets.


The Corporate Sustainability Reporting Directive (CSRD) has always been considered a crucial legislative piece as it provides the financial sector with better data on the sustainability risks faced by investee companies and their impact on people and the environment. This data is vital for the financial sector to contribute significantly to the objectives of the European Green Deal and channel capital towards sustainability and transition finance. However, the proposed draft ESRS delegated act seems to be moving in the opposite direction. The act would introduce materiality assessments by reporting entities for most of the disclosure requirements and data points, including those data points that Financial Market Participants (FMPs) need to fulfill their mandatory obligations under SFDR. These include PAI reporting, "sustainable investment" Do Not Significant Harm (DNSH) tests, and access to climate-related information such as scenario analysis, transition plans, targets, and forward-looking information for implementation of decarbonization strategies, including relevant targets. Moreover, the act also delays the application of certain data points by investee companies, exacerbating the sequencing issues between CSRD and SFDR.


As a result, we advocate for the removal of materiality assessments on the indicators that ensure accurate and comprehensive sustainability reporting across the investment chain, from investee companies to financial market participants (FMPs) and from FMPs to end investors. EFAMA believes that climate information such as greenhouse gas (GHG) emissions, transition plans, and targets is always material for companies, regardless of their sector, and supports mandating all the related disclosure requirements and data points. This is not only to ensure coherence with EU Climate Law but also to guarantee that investors and asset owners have access to the most complete set of climate-related information possible. Furthermore, we highlight the need to avoid different phasing-in times between SFDR and CSRD to bridge the data gap caused by materiality assessments. If phasing-in periods will be maintained, coverage thresholds for Principle Adverse Impacts (PAIs) and clear guidance on handling extended phasing-in periods should be considered.


The paper provides several recommendations to address the challenges and inconsistencies related to materiality assessments, data gaps, and phasing-in periods for SFDR obligations. It calls for eliminating materiality assessments on crucial ESRS disclosures/data points for FMPs to meet their SFDR disclosure obligations. If materiality assessments are maintained, the Commission should cooperate with the European Supervisory Authorities (ESAs) and engage with stakeholders to recalibrate PAI entity-level requirements for FMPs and provide clear guidance on handling missing data points. In addition, interoperability among standards (ISSB, GRI and ESRS) should be also be ensured.


The European Commission’s current plans for corporate reporting create inconsistencies with the regulation for sustainable finance disclosures. This would introduce challenges for effective sustainability reporting by banks and fund managers, and undermine investor confidence. Removing materiality assessments is crucial for accurate and transparent reporting, reducing reliance on ESG data providers, and ensuring the success of the European Single Access Point. Alignment between CSRD/ESRS and SFDR is necessary, and policymakers should prioritize coherence in EU sustainable finance initiatives.

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