The UN-supported Principles for Responsible Investment (PRI) and Eurosif, the European Sustainable Investment Forum, have written to EU legislators urging that companies that have made 2050 net-zero commitments be subject to “clear, robust disclosure requirements”, particularly around climate scenarios and their underlying assumptions.
The letter, which is addressed to Mairead McGuinness, the European commissioner for financial stability, financial services and the capital markets union, was sent to the European Parliament, the European Council and European Commission.
The trio are currently in trilogue – an informal tripartite meeting on legislative proposals – over the EU’s Corporate Sustainability Reporting Disclosure (CSRD) regulation, which will set the rules of the road for companies operating in the EU on their sustainability reporting obligations.
Writing on behalf of the sustainable investment community, Eurosif and the PRI stressed the “need for a CSRD framework that promotes meaningful transition efforts on the part of companies and provides investors with effective tools to steer capital towards sustainability leading companies”.
“It is crucial,” they continued, “that, at the end of the trilogue negotiations, CSRD mandates companies to prepare transition plans and disclose the scenarios used for these plans as well as the key assumptions underpinning these scenarios.”
Such disclosures should apply “as a bare minimum” to companies that have made 2050 net-zero pledges, they added.
Last month, an amendment to the European Parliament’s position on CSRD, which was advocated for by Eurosif and would have enhanced disclosure requirements for firms with net-zero commitments, was voted down, including by the Greens. That amendment, which echoed the position in the joint letter with the PRI, would have required companies with a net-zero target to disclose “1) the scenario they use, 2) the transition assumptions used for their industry and 3) in how far offsets are used to achieve this target”.
The European Parliament’s final CSRD text, which has now been taken to trilogue, would require all large companies to prepare a transition plan where targets are used and would require that they be science-based. This requirement for such mandatory plans, however, could be a sticking point for the European Council, which is typically more conservative than the European Parliament.
In their joint letter, which was sent last week but made public Monday, the PRI and Eurosif noted the increasing number of companies making net-zero commitments. “While this trend is encouraging,” they wrote, “it is often difficult for investors to assess the extent to which these commitments are science-based and underpinned by credible scenarios due to a lack of relevant and comparable data at company-level”. This issue was raised recently by UN secretary-general Antonio Guterres, who at COP26 made the scrutiny of companies’ net-zero commitments a priority for 2022.
Eurosif and the PRI concluded their letter by stating that “a CSRD that does not contain robust, granular requirements around net-zero commitments would be a missed opportunity”.
“The [CSRD] directive will set the overall framework and the scope of sustainability reporting standards being developed by EFRAG. Therefore, we are keen to have more granular requirements in the text itself,” Victor van Hoorn, Eurosif’s executive director, told Responsible Investor.
He added his hope that the European Parliament will be able to convince the council of the merits of science-based transition plans, as it is something Eurosif regards as “vital to confirm Europe’s role at the forefront of sustainable finance”.
Trilogue on the CSRD could end as soon as next month.