European financial firms call for further changes to sustainability reporting standards

European financial firms have called for changes to the European Sustainability Reporting Standards (ESRS), which they will have to apply in 2024 for 2025 reports.

In response to the first proposed set of standards on ESG risk published by the European Financial Reporting Advisory Group (Efrag) in November, Insurance Europe and the European CFO Forum said the text has already undergone “considerable improvements” since the draft phase, but called for further “refinements”.

“Efrag’s first set of proposed standards is a considerable achievement given the ambitious timetable and the scope that covers all ESG areas,” the two bodies said. They welcomed improvements to disclosure requirements, in particular the focus on important disclosures and data, as well as phase-in provisions that will allow time for data to become available throughout companies’ value chain. The proposed standard also removed the concept of ‘rebuttable presumption’, which Insurance Europe said would have been “very burdensome”.

But the two associations called for action on several outstanding points, including greater clarity on the value chain definition for financial institutions. They said the current definition of direct and indirect relationships in the value chain is “too wide and would not work in practice”.

They also stressed concern over how the ESRS will work with the International Financial Reporting Standards development of its Sustainability Disclosure Standards. Work should continue to eliminate any inconsistencies and ensure companies can comply with both, said the two bodies.

The associations argue that insurers defined as low risk under Solvency II should be subject to simplified SME reporting requirements under ESRS. “We are still concerned about the application of the extensive ESRS to smaller insurance entities,” they said.

Insurance Europe and the European CFO Forum added that companies applying these standards need additional implementation guidance from Efrag and the European Commission.

They were responding to an Efrag consultation on the proposed standard, with the final version scheduled to be adopted in June.