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EC floats unpopular changes to sustainable finance framework

The European Commission (EC) has set out a new package of measures around the EU sustainable finance framework.

The Commission said the package was part of an effort to ensure the framework continued to support companies and the financial sector, while encouraging private funding. Among its auspices were a new set of EU Taxonomy criteria for the economic activities making a “substantial contribution” to sustainable use and protection of water and marine resources, the transition to a circular economy, pollution prevention and control, and the protection and restoration of biodiversity and ecosystems.

According to the EC, the criteria are informed to “a very large” extent by the recommendations of the Platform on Sustainable Finance, published in March and November 2022. The Commission has also adopted amendments to the EU Taxonomy Disclosures Delegated Act, to clarify the disclosure obligations for the additional activities.

The Commission has also proposed a regulation to improve the reliability and transparency of ESG ratings activities. It argued these new rules would enable investors to make better-informed decisions regarding sustainable investments. Moreover, the proposal would require ESG rating providers offering services to investors and companies in the EU to be authorised and supervised by the European Securities and Markets Authority (ESMA).

The EU Taxonomy Delegated Acts are approved in principle and, once all EU official languages are made available, they will be adopted and transmitted to the European Parliament and the Council for their scrutiny – expected to be a four-month period, extendable once by two additional months.

Lack of ambition?

While the proposed changes are expected to apply as of January 2024, they have not gone done well in other quarters, with the European Sustainable Investment Forum (EUROSIF) suggesting the plans lacked ambition. It continued: “Eurosif is very concerned with the European Commission’s latest changes to the draft standards, which mark a significant setback in ambition compared to the final recommendations published by EFRAG in November 2022.”

It added: “The development of robust and comprehensive ESRS [European Sustainability Reporting Standards], based on the double materiality principle and covering environmental, social and governance matters, is strongly supported by Eurosif. These standards are key to solving the corporate sustainability data gaps as well as to improving the quality, reliability and comparability of these disclosures.”

EUROSIF maintained the proposals would render all ESRS standards, disclosure requirements and data points subject to a materiality assessment. This, it wrote, combined with the added flexibility authorised by the Commission for these assessments, would effectively allow companies to leave out entire parts of their sustainability disclosures.

The body concluded: “This goes against EFRAG’s final technical advice recognising the aforementioned disclosures as always being material, which were agreed upon by representatives of companies (preparers), investors, other financial market participants and civil society. It should also be noted that EFRAG proposals for ESRS Set 1, before they were submitted to the European Commission in November 2022, were nearly halved following the public consultation last year.”

Pete Carvill

Pete Carvill is a reporter, writer, and editor based in Berlin who has been writing for the B2B and mainstream media since 2007. He is a contributing writer for Expert Investor and, in addition, has...

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