PensionsEurope submitted its feedback on the proposal of the EU Corporate Sustainable Reporting Directive (CSRD). IORPs as investors are users of the data which companies will be required to provide under the legislative proposal for a Corporate Sustainability Reporting Directive.

PensionsEurope is pleased that the intention is to create consistency between the Taxonomy Regulation and the Sustainable Finance Disclosure Regulation (SFDR) on the one hand and the Corporate Sustainability Reporting Directive and the future sustainable reporting standards on the other.

We welcome the clear link with the SFRD in the CSRD proposal. The SFRD introduces reporting requirements on principal adverse impacts (PAIs) along with a broad set of 18 quantitative and qualitative indicators. Therefore, the financial sector essentially is required to report on information that does not yet need to be made public by companies. This means that pension funds will need to obtain information, partially based on estimates, from specialized data providers. As a result, data sets can diverge significantly and come at a significant cost.

For the implementation of the responsible investment policy and own reporting obligations under the SFDR, pension funds need information on the companies they invest in across the spectrum of asset categories. The majority of these investments are in listed companies that would have already been subject to reporting under the NFRD, but some other investments may be brought in scope. This applies to private equity investments and smaller listed companies. It is good to note that a very significant share of investments is located in the US or emerging markets and these will remain out of scope.

We welcome the extension of the scope as it helps to develop responsible investment strategies in areas where data may still be lacking, such as private equity. At the same time, broad coverage of companies should not come at the expense of the depth of information.

To conclude, PensionsEurope supports the introduction of the European Single Access Point and we support the proposal’s requirement for the limited assurance of sustainability reporting. You can read our feedback here.

PensionsEurope welcomes the EC Communication which aims to take next steps in the EU Sustainable Finance Strategy. Private finance has an important role to play in the recovery from the COVID pandemic and in the transition to a sustainable economy.

The new strategy is calling for the publication of a report for activities which sounds like a “brown taxonomy”. PensionsEurope believes that while a brown taxonomy would provide further indications concerning environmental risks, its development might produce negative consequences, especially if not complemented by consistent indicators promoting the greening of enterprises.

Pension Funds also worry on how double materiality may be regulated. The IORP II Directive already requires IORPs to consider ESG risks and disclose information to current and prospective. PensionsEurope believe that the IORP II Directive clarifies that the measures should be proportionate to the nature, scale and complexity of the IORP. Any EU action has to be in accordance with the principle of proportionality and it would also be preferable for any action to take first into consideration the upcoming revision of the IORP II Directive. You can read our press release here

In our input to EIOPA, we find it important that financial entities can be unequivocally identified, and we agree that it would be useful to have one worldwide identifier for that purpose. PensionsEurope would like to thank EIOPA for having considered proportionality in its draft guidelines on the use of Legal Entity Identifier, and we agree with the EIOPA proposal.

In general, we find proportionality of the utmost importance when introducing any new requirements to IORPs. Particularly the current low/negative yield environment has made small IORPs very sensitive to any additional fixed costs, on top of the already existing investment, administration, governance, and communication costs.