Position paper
Finance Watch welcomes the opportunity to react to the European Commission’s draft act and supports the close alignment of the draft act with the technical advice provided by the European Financial Reporting Advisory Group (EFRAG).
In particular, Finance Watch welcomes the decision not to separate information that is material from an impact perspective and information that is material from a financial perspective. Such separation would create uncertainty and complexity in interpreting information captured by the same single data point, and negatively affect the quality of the information reported. Finance Watch also considers that the disclosure of the results of the double materiality assessment already provides a distinction at the granularity level that allows to establish sufficient interoperability between the Corporate Sustainability Reporting Directive (CSRD) and the International Sustainability Standards Board (ISSB).
Yet, Finance Watch expresses concerns about the exemption of certain reporting obligations for undertakings that carry out asset management activities. First, the absence of a definition of the terms “fiduciary duty” and “clients” creates uncertainty on the exact scope of the exemption. Second, by focusing on the undertakings that retain risk when managing investments to define the scope of reporting entities, the revised ESRS disregard the impact of investment managers’ decisions and thus create an information gap. This approach contradicts the double materiality principle of the CSRD. Moreover, whether investments are managed on their own account or on behalf of clients, investment managers remain exposed to sustainability risks, including revenue losses (e.g. through performance fees) and reputational impacts. Finally, Finance Watch highlights that this issue is accentuated by the proposed deletion of entity-level disclosures under the Sustainable Finance Disclosure Regulation.
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