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23 Nov 2022

Frank Bold, Shareaction, BHRRC & 10 others

EU Commission’s advisory group publishes the first set of sustainability reporting standards. NGOs warn against reduction in ambition

Whilst we would appreciate a greater level of ambition on a number of sustainability issues, we welcome the following key aspects:

  • In line with the CSRD mandate, the ESRS provide a common system for reporting on all ESG topics, making it easier for companies to understand which data is needed from them and how to approach sustainability matters in a holistic manner, and significantly reduce the risks of greenwashing...
  • The ESRS adopted by EFRAG’s multistakeholder board addressed the inputs and concerns emerging from the public consultation...
  • Disclosures that relate to Climate change mitigation and adaptation include scope 1-2-3 emissions and are always mandatory...
  • Life cycle analysis is confirmed as the cornerstone in assessing environmental sustainability in the EU; 

With regards to the matters that must be protected from political pressure and further developed in sector-specific standards in future:

  • Following the public consultation, the number of datapoints in the ESRS was reduced by approximately 50%. Such a massive simplification, however, led to a reduction in the granularity of data and requirements for value chain disclosures. As proven by the Corporate Human Rights Benchmark in 2020, the most common types of allegations related to instances of forced labour, health and safety, and child labour occur in developing countries. The worst cases of environmental destruction also take place upstream in companies’ value chain, such as deforestation, which the latest UN report on net-zero emphasises will have to end by 2025 if we are to reach net zero by 2050. 
  • The ESRS provide a helpful general framework for reporting on the identification and assessment of impacts and risks across the value chain, which is aligned with international standards. However, in terms of value chain metrics, the ESRS lay down specific sector-agnostic indicators only with respect to the companies’ own activities and own workforce, with the sole exception of the climate standard, which requires disclosures of Scope 3 GHG emissions. The other environmental standards, as well as the social standards regarding workers in their value chain, communities and end users and consumers, do not prescribe any value chain indicators.
  • The CSRD provides flexibility for companies’ reporting of specific value chain data during the first 3 years. This addresses concerns that companies may otherwise have difficulty reporting on their value chains during the initial application of the reporting standards. The transition period removes any justification for further watering down these standards, which are essential to fully understand the performance, resilience and behaviour of companies operating in the EU...
  • The S (social) pillar is also incomplete when it comes to inclusion and diversity. The standards do not include yet any datapoint on ethnic diversity, thus failing to address the issue of systemic discrimination based on ethnicity or race.

The proposed ESRS lay down an urgently needed baseline for sustainability reporting which is aligned with international standards and addresses the most pressing conceptual and methodological challenges companies are facing. Therefore, we call for the adoption of the ESRS framework by the European Commission and endorsement by the EU Parliament and Member States. We warn against further cuts into the proposed standards, which would severely undermine its functionality and hinder EU’s efforts to create a more sustainable and just economy.