Asset managers, banks want tougher ESG reporting rules for firms

Almost 100 European asset managers and banks, as well as ESG fund associations and a UN-backed network of financial institutions, plan Friday to call on the EU to rewrite ESG reporting rules to make climate reporting mandatory.

“Unfortunately, we feel that investors and other financial market participants’ interests weren’t dually taken into consideration” when the proposal was drawn up, Aleksandra Palinska, executive director of the European Sustainable Investment Forum (Eurosif), said Thursday at a public hearing.

Last month, the European Commission published its proposal for implementing the Corporate Sustainability Reporting Directive, a linchpin in the European Union’s package of legislation to address climate change, environmental degradation and human rights violations. As part of CSRD, companies will have to provide information on a range of topics from emissions to employment practices.

The commission is now hashing out how those reporting standards should look. But the plan has been faulted for giving companies too much latitude to decide what to disclose. The problem is compounded for the finance industry, which faces stricter reporting requirements under another set of EU rules targeted at the sector.

At the hearing, Palinska said the group plans to deliver a letter to the commission Friday that lays out its demands. In addition to Eurosif, other signatories are the European Fund and Asset Management Association, the Principles for Responsible Investment, the Institutional Investors Group on Climate Change and the United Nations Environmental Program Finance Initiative.

The organizations want the commission to rewrite the proposed reporting standards under CSRD to be more stringent. Specifically, they are seeking to make mandatory a number of environmental, social and governance indicators, including climate data, so investors can assess the credibility of corporate transition plans.

The commission has said it has tried to avoid placing an excessive reporting burden on companies, particularly smaller businesses. At Thursday’s public hearing, Mairead McGuinness, the EU’s financial services commissioner, reiterated the point and warned that too tough a disclosure regime might backfire.

“The whole idea of mandatory is great in theory, but I’m not so sure it always works well in practice” as “we would get significant pushback,” McGuinness said.

In addition, “there might be the occasional company that thinks they can skip away and not comply,” she said. “They will be caught out.”

Friday is the deadline for submitting comments about the proposed standards to the European Commission. After that, the proposal goes to the European Parliament and then the EU Council. Implementation is slated for 2024, with the first corporate reports due in 2025.

“We understand that there is a need to find the right balance, but unfortunately we believe this balance is actually not found,” Palinska said.

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