European trade body ‘demands’ EU align ESG disclosure rules with global efforts

EuropeanIssuers says CSRD proposal will put European firms at competitive disadvantage without international alignment

EuropeanIssuers (EI), a trade body representing 8,000 EU firms, has demanded that the European Commission align its planned corporate sustainability reporting standard with international efforts in order to prevent putting EU-based firms at a competitive disadvantage.

The European Commission said in its April proposal for a Corporate Sustainability Reporting Directive (CSRD) that it would “take into account the work of global standard-setting initiatives for sustainability reporting”, but EI told policymakers that “this formulation is not sufficient”. 

“EuropeanIssuers demands that the future European standard converges with the main international – ongoing or future – initiatives to avoid multiple and competing mandatory reporting measures that would apply to international companies operating simultaneously in different major jurisdictions,” it said in feedback to the proposals during a public consultation. 

The CSRD is a revamp of the EU’s Non-Financial Reporting Directive (NFRD), and will impose mandatory reporting requirements on 49,000 firms. 

EI’s advisory council is chaired by Belgian politician and businessman Etienne Davignon – a former vice-president of the European Commission. The group, whose members  include BNP Paribas, AEGON, Unilever and Total, has been given an ‘E-’ grade by lobbying-focused NGO InfluenceMap, who argue it is hindering climate action. 

EI said in a statement accompanying its feedback that while it welcomed the Commission’s efforts to create “a clearer and more coherent reporting framework within the EU”, its current plan is “too prescriptive and does not consider adequately the competitive issues that EU companies could face on international level, neither the costs generated to implement the new requirements”. 

The CSRD proposal still has to pass through the European Parliament and member states in the Council. But the European Financial Reporting Advisory Group (EFRAG) has already set to work on a first set of draft standards, which the non-profit is expected to complete by mid-2022.  

EI stated that the preparatory work by EFRAG should be “aligned with the future international standard on climate related reporting announced by the IFRS Foundation”.  

The International Financial Reporting Standards Foundation is working on creating global sustainability standards built on frameworks such as the Taskforce on Climate-related Financial Disclosures (TCFD). Those standards are expected to focus on the risks posed to companies by environmental and social issues, while the EU is pushing for a reporting framework that also captures the risks posed to society and the environment by companies.

EI continued that any standard developed by the EU before the international standards are established must “not be too rigid to avoid putting EU companies at an entirely different footing than their US and Chinese competitors”. 

The trade body suggested that until there was international convergence on reporting standards, EU-based companies should be able to report under the international standard of their choosing, as long as they could provide “adequate justification” to do so. 

“It would therefore be preferable, awaiting the outcome of convergence between EU and international standards, that European companies could opt, with adequate justification, for approved international standards (GRI, SASB) recognised as equivalent at European level through a special procedure (similar to the procedure applying to non-EU companies)”, EI said, referring to the voluntary standards created by the Global Reporting Initiative and Sustainability Accounting Standards Board. 

One of the biggest changes under the CSRD is the number of firms that would be obliged to report sustainability data, which will jump from 11,700 under the current rules to more than 49,000 – three quarters of all EU-based companies, including both listed and private entities. 

EI said that the inclusion of Small and Medium-sized Enterprises (SMEs) was “not justified”, arguing that there was “no correlation between the ‘listing status’ and the companies’ impact on ESG or ESG’s impact on companies”. SMEs should be “exempted from the mandatory discipline of the CSRD or at least implement an opt-in mechanism allowing them to use simplified reporting regimes,” the group said. 

In response to EI’s feedback, a spokesperson from the European Commission told RI that “although the proposed CSRD would imply additional costs in the short term for companies subject to its requirements, most companies will face an increase in costs anyway because of the growing demand from investors and other stakeholders for corporate sustainability information”.

He added that the Commission's proposal is “an opportunity for an orderly, cost-efficient solution to the problems posed by this increase in demand, based on building consensus around the essential information that companies should disclose”.