The recent consultation on the European Sustainability Reporting Standards (ESRS) has seen a range of responses, all emphasizing the need for interoperability and consistency with other reporting regimes, with the goal to avoid duplication of effort and increased costs for companies but balancing the need for innovation.

Materiality and climate-related matters

One key concern raised is the materiality test for climate-related issues and its approach. While the Draft Delegated Act (DA) of the European Commission generalizes the materiality assessment to all disclosure requirements, the AMF questions the current application of this approach to climate-related matters. It believes that the requirement for thematic standards should be applied onlywhen the corresponding sustainability topic is material for a company. The French regulator paves the road for improvement, for example by suggesting that there is an obligation for companies to justify when they do not meet disclosure standards, providing an explanation of the conclusions reached in the materiality assessment for climate topics if they are deemed non-material and thus exempted from disclosure requirements.

Access to data

Access to data is a key issue for many in the industry, as is consistency across EU Regulations on sustainability. Another concern is that the cost efficiency aspect does not undermine innovation, which requires reducing burdens and ensuring proportionate standards. Standards, disclosure requirements, and data points need to undergo a materiality assessment, except for in a few specific cases.

It is crucial to streamline reporting obligations, ensuring their efficiency and avoiding duplication, unnecessary burdens, and leveraging digital and interoperable solutions. In alignment with this commitment, the DA has taken steps to simplify reporting requirements. As a general principle, all standards, disclosure requirements, and data points will undergo a materiality assessment, except for a few specific cases. Consequently, the proposed ESRS in the draft DA would undeniably alleviate the regulatory reporting burden for corporations, granting them the discretion to determine the materiality of climate/sustainability issues to their business.

Reporting obligations or burdens?

Providing detailed information on negative implications for investors is important when taking any decisions regarding their capital allocation for achieving their net-zero transition goals. Indeed, the joint response of the ACPR and Banque de France highlights reservations about certain simplifications proposed in the standards, particularly the broad application of materiality analysis.

Likewise, shareholders and other important stakeholders may also face challenges in assessing a company's progress towards climate targets and other sustainability objectives due to reduced transparency. Proposed sustainability standards may also suffer from a lack of established benchmarks.

Certain industry organisations have expressed concerns about the deviation from the original purpose of the Corporate Sustainability Reporting Directive (CSRD), which could potentially undermine its effectiveness. While they acknowledge the suitability of this approach for well-established standards such as financial reporting, the French authorities caution against its widespread use for new sustainability standards that lack established benchmarks and cannot solely rely on market pressure.

Ultimately, as we move forward, striking a balance between accountability and innovation is crucial for the success of sustainability reporting standards.

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