Finance Watch welcomes the opportunity to provide feedback in order to raise important concerns on the reduction in scope and requirements of the EFRAG proposal of November 2022. The EFRAG proposal is already a multi-stakeholder compromise where civil society organizations, industries and investors are represented. In that context, further reduction in reporting requirements will undermine the credibility of the process for the development of sector-specific standards.
In particular, Finance Watch warns the Commission of the unintended consequences of the following changes:
- the change of indicators from a mandatory status to being subject to a materiality assessment: CSRD is expected to help financial market participants to collect the necessary information to prepare their principal adverse impact statement required by SFDR. However, making the publication of the necessary indicators in the non-financial report subject to a materiality assessment poses the question of data availability, which could result in underestimating the principal adverse impacts of the investments made by FMPs. Moreover, it may lead to overreliance on the upcoming EFRAG guidance on materiality assessment and on the quality of assurance engagement, neglecting the challenges of acquiring the necessary knowledge in sustainability reporting assurance and applying assurance standards that are expected to be framework-agnostic. Those concerns are exacerbated by the fact that a reporting undertaking will not be required to provide explanations on the conclusion of the materiality assessment.
- the conversion of mandatory indicators to voluntary indicators: the principle of optional indicators does not work as it defies the purpose of regulatory requirements (by definition compliance with regulation must be mandatory), jeopardizes the comparability between reporting undertakings and increases the risk of greenwashing.
- the phasing-in of certain reporting requirements with the introduction of a new threshold: the introduction of new thresholds and an extended progressive implementation of reporting requirements will add confusion to the already-complex phased-in implementation and will increase the risks of misinterpretation by the preparer, by consulting firms, by the assurance service provider and by the supervisory authorities.
Finance Watch therefore calls the Commission to keep CSRD delegating acts simple by reinstating the mandatoriness of indicators when proposed by EFRAG, removing the voluntary nature of more indicators and making them subject to materiality assessment, and removing the additional phasing-in proposed by the Commission.
