In a joint response to a consultation by the European Financial Reporting Advisory Group (EFRAG) on its draft European Sustainability Reporting Standards (ESRS), Insurance Europe and the CFO Forum have made a number of recommendations including the urgent need for a phased introduction.
European insurers are committed to supporting the transition to a more sustainable economy and to tackling climate change as a matter of urgency. The European insurance sector strongly supports the EU’s objective of transforming Europe into a climate-neutral continent by 2050 and is ready to contribute to that objective.
Europe’s insurers therefore support the European Commission’s ambitious objective of developing a robust sustainability reporting framework through the Corporate Sustainability Reporting Directive (CSRD). Insurers require the data that the CSRD will provide to fully develop and embed environmental, social and governance factors into how they operate, to progress with net-zero transition plans and to comply with mandatory reporting requirements. More broadly, the CSRD will also ensure greater transparency on how many companies operate and manage social and environmental challenges.
However, to ensure sustainability reporting standards are of sufficient quality and achieve their objectives, the insurance industry would like to make the following points:
- All the areas covered by the standards are important. However, trying to finalise all the proposed standards in the very short time available is not realistic and could create standards that are not of suitable quality. There is an urgent need for a phased approach in the development and implementation of the ESRS. The first phase should focus exclusively on standards related to mandatory reporting (eg, Sustainable Finance Disclosures Regulation and EU Taxonomy Regulation) and on requirements that overlap with the standards of the International Sustainability Standards Board (ISSB).
- The insurance industry supports the EU’s ambition to go beyond the ISSB’s global baseline, with a clear goal that compliance with European standards will mean automatic compliance with relevant ISSB standards (known as “super equivalence”).
- European sustainability reporting standards should favour quality and relevance over exhaustiveness.
- Companies must be able to focus their efforts efficiently on the standards that relate to relevant and material activities and impacts. EFRAG should not introduce the rebuttable presumption (requiring companies to consider all areas relevant unless they can prove otherwise) as it is currently proposed, since this would not only create inconsistencies with financial reporting and the ISSB proposals but could also lead to a situation in which the effort to justify non-disclosure by using the rebuttable presumption would exceed the effort to report immaterial data.
- The definition of value chain for the financial sector is currently too vague and needs to be clarified. This includes clarifying that a look-through to (all) investees, clients and policyholders for all disclosures is not required given the significant implications for reporting and challenges related to data availability.