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ESMA approves of proposed sustainability disclosures

ESMA, ESRS, The European Securities and Markets Authority (Esma) has backed the first set of draft European Sustainability Reporting Standards (ESRS Set 1), stating the regulations, which are meant to increase the quality of information in sustainable investing, are “broadly capable” of meeting investor protection, stability and sustainability objectives.

ESRS Set 1 are standard proposed by the European Financial Reporting Advisory Group (Efrag).

While ESRS Set 1 “broadly meets the objective of being conducive to investor protection and of not undermining financial stability”, more must be done to address several technical issues, notably the consistency between the Corporate Sustainability Reporting Directive (CSRD) and other pieces of EU legislation. More is needed, alongside clarifications of definitions and terminology, said Esma in its recommendation.

Further guidance on the materiality assessment process should also be issued ahead of adoption by the European Commission, Esma also noted.

Verena Ross, Esma chair, said: “The development by Efrag of the first draft set of ESRS is a major achievement. These standards will increase the consistency and quality of information flowing through the sustainable investment value chain.

“In line with the Esma Strategy, we will continue to contribute actively to the sustainability reporting standard-setting process, with the aim of supporting the capital markets in financing the transition to a sustainable economy."

The sustainability standards-setting process primarily focusses on three areas: aligning European reporting standards with other international instruments, making the materiality assessment process more central to the overall reporting process; and a reduction in the overall reporting burden faced by companies.

Esma’s opinion came in response to a request from the European Commission to ensure the mandate falls in line with the Corporate Sustainability Reporting Directive.

The Commission will now consider Esma’s opinion alongside those submitted by the European Banking Authority, the European Insurance and Occupational Pensions Authority and other public bodies.

The draft ESRS Set 1 is expected to be worked into acts by June 30, 2023.

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