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EU set to approve ESG database in bid to address data gaps

SASB investor advisory group - which includes big European names - welcomes creation of IFRS' International Sustainability Standards Board (ISSB) and focus on enterprise value

The EU is expected to make good on its promise to give investors “seamless access” to financial and sustainability data after leaked documents show proposals for its flagship European Single Access Point (ESAP), which will be formally unveiled in the coming weeks.

Draft legislation seen by RI indicates that the ESAP is to be established by the European Securities and Markets Authority (ESMA) by December 2024 and will provide EU-wide access to sustainability information reported by companies, in addition to other financial data.

It follows a public consultation, workshops and input from expert advisory groups which found widespread support for the proposal.

The lack of high-quality, standardised and accessible ESG data has been a longstanding sticking point for the EU’s sustainable finance ambitions and has already caused a delay to anti-greenwashing product disclosure requirements, which were due to come in earlier this year.

Meanwhile, investors and other financial sector participants have complained that the roll-out of granular sustainability reporting requirements in the EU, despite the absence of company-reported information, has created a reliance on third-party ESG data providers – a market that the EU’s own regulators have flagged as a “fertile ground for potential conflicts of interest”.

According to the draft ESAP proposals, ESMA will be allowed to charge fees to users who “require very large volumes of data or frequently updated information” to protect the regulator from excessive financial burdens. Other users, including EU and national regulatory bodies, will be able to freely access the resource.

While the incoming disclosure rules – to be introduced under the EU’s Corporate Sustainability Reporting Directive (CSRD) – will only apply to larger companies, SMEs will be encouraged to provide sustainability information to the ESAP on a voluntary basis.

The ESAP is one of a growing number of ESG databases being developed by jurisdictions including the UK, while green central banking body the NGFS is working on a similar initiative to provide banks access to climate and biodiversity-related data.

The European Financial Advisory Group (EFRAG) working on reporting standards for the CSRD also announced progress on its work this week in a new status report.

The group revealed that it had met with the experts behind upcoming global sustainability standards six times since July to assess the level of “compatibility” between their respective efforts.

The global standards are being developed by the International Sustainability Standards Board (ISSB) – a new body set up under the longstanding International Financial Reporting Standards Foundation.

Members of the two entities have discussed “the approach to materiality and the architecture of standards” during their meetings, EFRAG said, referring to the fact that ISSB is focusing on enterprise value in its framework, while Europe has opted for a wider approach known as double materiality.

Earlier this week, big European investors including Legal & General Investment Management, Allianz and Axa gave their backing to the ISSB – including its decision to focus on enterprise value.

The investors, part of an 62-strong advisory group to the Sustainability Accounting Standards Board, wrote that they were “encouraged to learn that the IFRS Sustainability Disclosure Standards will include an industry specific element and leverage existing standards and frameworks focused on how sustainability issues impact enterprise value, including the SASB Standards”.

They also “applauded” the IFRS’ decision to “lead consolidation of the sustainability disclosure landscape” by absorbing existing standard setting bodies the Climate Disclosure Standards Board (CDSB) and the Value Reporting Foundation (VRF) into itself, a process that is expected to be completed by June 2022.  SASB itself is currently housed within the San Francisco-based VRF.

Investors have expressed concerns in recent years about the flurry of reporting standards being developed by different bodies around the globe, which could lead to companies and financial institutions having to meet multiple sets of requirements. These concerns have been amplified by the different approaches to materiality being taken by Europe and the rest of the world. However, EFRAG’s progress report stated that it had compared its own work with two ‘prototypes’ published by ISSB earlier this year and found them to be “fully compatible”.