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EUROSIF A.I.S.B.L (EUROPEAN SUSTAINABLE INVESTMENT FORUM)

EUROSIF

Eurosif is the leading pan-European sustainable and responsible investment (SRI) membership organisation whose mission is to promote sustainability through European financial markets.

Lobbying Activity

Response to Postponement of deadlines within the Accounting Directive for the adoption of certain ESRS

19 Dec 2023

Eurosif welcomes this consultation and provides a full response in the document attached. Please find below a summary of Eurosifs response: Robust and comparable sustainability-related disclosures are an essential prerequisite to mobilise finance towards the just transition to a net zero economy. The recent adoption of sector-agnostic European Sustainability Reporting Standards (ESRS) is a very welcome step in that direction. However, to further improve corporate sustainability-related disclosures, the adoption of high quality sector-specific European reporting standards is needed. Eurosif appreciates that the initial deadline for the development of the first batch of sector-specific ESRS set in the Corporate Sustainability Reporting Directive (CSRD) was overly optimistic given the length and complexity of the standard-setting process, EFRAGs limited resources, and the need to prioritise development of the application guidance to support implementation of the first set of ESRS. Therefore, Eurosif understands the decision of the European Commission to postpone the legal deadline for the adoption of sector-specific standards by 2 years. Consequently, we also acknowledge the rationale for postponing the standards for certain third-country undertakings, while noting that the CSRD requires their application as from the 2028 financial year for first reports in 2029. At the same time, Eurosif emphasises the need for a well-thought through sequence, and timely development and adoption of the sector specific ESRS. Their development and adoption should feature among the priorities in the European Commissions workplan for the next mandate, for the following reasons: i) Sector-specific disclosures are expected to support companies from specific sectors in performing materiality assessment and deciding which disclosures are particularly relevant for them. Moreover, the sector agnostic ESRS do not specify the detailed sector-specific content of disclosures for complex topics such as decarbonisation, biodiversity, or human rights. ii) High-impact sectors hold a key role in the transition towards a sustainable economy. Ensuring the adaptation of their business models is essential to meet important climate-related goals such as the objectives of the Paris Agreement and the 2030 and 2050 EU climate targets. For these reasons, Eurosif calls on the European Commission to: 1) Guide and oversee the well-sequenced and timely development of the sector specific ESRS. We suggest prioritising standards for high-impact sectors development of which is considerably advanced within EFRAG (Oil & Gas; Mining, Quarrying & Coal; Road & Transport; Textiles, Accessories, Footwear, and Jewelries; Agriculture, Farming & Fishing) and, if there is enough capacity, for which standard setting research has already started (Food & Beverage Services; Motor Vehicles; Power Production & Energy Utilities). Eurosif cautions against developing standards for financial institutions before standards for other sectors are completed to avoid inconsistencies and overlaps with sectoral financial regulations. 2) Reflect on whether the deadline for the ESRS for third-country undertakings is appropriate given that certain non-EU companies are expected to report only as from the 2028 financial year for first sustainability reports published in 2029. This can be addressed by referring non-EU companies to use sector agnostic ESRS adopted already as a reference point. This would enable to free up resources for the development of sector-specific standards from high-impact sectors. 3) Once the thorough reflection on the sectorial standards sequencing is completed, the European Commission should publish a clear timeline for the development of the remaining sector-specific ESRS. 4) Lastly, we would like to reiterate our plea to ensure adequate resources for EFRAG to enable quality and timely delivery of all the expected outcomes.
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Response to Commission Delegated Regulation on taxonomy-alignment of undertakings reporting non-financial information

2 Jun 2021

We are broadly supportive of the European Commission draft Delegated Act supplementing Article 8 of the Taxonomy Regulation (EU 2020/852), as it generally aligns with elements of advice issued by ESMA in its final report. However, the draft delegated act diverges significantly from the advice by ESMA by excluding exposures to central governments from the denominator of the key performance indicator (KPI) for financial undertakings. It is true that government bonds are challenging to assess for Taxonomy alignment. However, excluding them from the denominator (Article 8(1)) will artificially increase taxonomy alignment KPIs of financial undertakings by reducing the denominator. Furthermore, counting government bonds only when green or taxonomy aligned in both numerator and denominator would add a 100% aligned exposure to the calculation, further distorting these KPIs. We believe it is far more honest and transparent to count all assets in the denominator, complemented with qualitative explanations on the assessability of government bonds rather than artificially report higher taxonomy alignments. Furthermore, this may artificially penalise investors in other classes and particularly in equity instruments between now and 2025 (Article 10a review clause). Firms focussing predominantly on equities will have to report across their full portfolio whereas firms investing heavily in government bonds will completely excluded large parts of their balance sheet. This may result in situations where one firm reports a low level of alignment across a wide equity portfolio whereas another firm reports a high level of alignment based on a small fraction of its balance sheet. This could easily mislead investors for whom taxonomy alignment may be an important investment factor. This seems odd when the Capital Market Union agenda seeks to promote equity investments. Finally, including governments bonds in the scope will not affect the attractiveness or funding costs of these instruments since firms will be reporting only at an aggregate level on their portfolios and not on individual government bonds, which ensures individual sovereign issuers cannot be identified. For all these reasons, Eurosif recommends including the value of all government bonds in the denominator, at least for asset managers, and keep in the numerator only green bonds issued under the EU Green Bond Standard or equivalent where it is possible to determine the Taxonomy-aligned activities financed by those green bonds. While not perfect, this is the most transparent, fair and honest solution. Regarding the content to be disclosed by non-financial undertakings, we welcome the possibility to consider capital expenditures (CapEx) as taxonomy aligned if it is part of a CapEx plan aiming to expand the company’s Taxonomy-aligned economic activities within five years. This is crucial to ensure that reporting requirements underlying the Taxonomy support transition finance and enable companies to communicate their transition plans, as suggested by the Platform on Sustainable Finance in its Transition Finance Report. We also support the requirement to disclose deviations from the original CapEx plan retrospectively and to keep the plan up to date yearly. We believe that this type of information should be an integral part of the sustainability reporting under the CSRD proposal and be subject to the same assurance and audit requirements over time. Finally, we concede that derivatives should remain excluded from the numerator of financial undertakings KPI, since there is there is no evidence at this stage on how this type of asset can align with the Taxonomy. The underlying reason is inherent to derivatives use, which do not enable financial undertakings to hold shares, have the voting rights and engage with the investee company management on their strategy. Engagement is how financial undertakings can have a voice and potential impact on the revenues and CapEx plans of companies.
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Response to Institutional investors' and asset managers' duties regarding sustainability

14 Aug 2018

• Reformulating Indices is of capital importance in a financial system where the 'benchmark' is the investment reference. Therefore embedding 'ESG considerations in benchmark methodologies could do much to fast-forward towards mobilising the climate investment required to meet the Paris Agreement shared goals of limiting global warming to 2 degrees and adapt to climate change impact. This is a significant opportunity to expand the role of index providers in boosting sustainable finance - the role of ESG in traditional benchmark methodologies should not be an afterthought. Too narrow a focus on low carbon benchmarks without proper consideration of ESG will undermine work being done elsewhere on sustainable finance. • Sustainability themed investing, the investment approach that best matches the Paris targets has been growing exponentially in recognition of its potential and in 2016 it was already the second fastest growing strategy in Europe with a Compound Annual Growth Rate (CAGR) at 57%, only surpassed by impact investing with a CAGR at 120%. Nevertheless, the total AuM allocated to this strategy is still only 145 billion euros. Sustainability themed investments need to get more traction if they are to play a significant role towards building a low carbon economy. • What can help? The proposal of the Commission to amend the Benchmark Regulation by 'introducing rules establishing and governing the provision of low carbon and positive carbon impact benchmark is welcome and strongly supported by Eurosif's constituency. Nevertheless, we should not lose sight of the traditional market benchmarks that today represent the standard for the majority of investors. Only by addressing them, we can hope to have significant impact. If on one hand is true that the absence of EU harmonised rules for low carbon benchmarks is a deterrent for investors, we feel the need to stress the strategic importance of defining methodologies based on a set of minimum standards for all benchmarks to include and give proper representation to Environmental Social and Governance criteria, would be the preferred strategy to fight against this status-quo. • As mentioned in the recital (point 15) administrators of benchmarks should be required to disclose their methodology in line with the goals pursued by their products. Today, this is generally not the case and providers of benchmarks that pursue sustainability objectives do not disclose this information. The amendment proposal of the European Commission should ensure methodologies are accessible and that objectives and impacts are made clear. • The sub-option 4a, (the preferred option-as presented in Commission proposal), is surely the most comprehensive option presented. The establishment of minimum standards for 'harmonising the methodology to be applied to low-carbon indices and positive carbon impact indices would greatly help in creating alignment and a level playing field among investors to their understanding of 'decarbonising strategies'. Minimum standards on low carbon and positive carbon would also allow leaders the flexibility to innovate and protect investors while safeguarding from “greenwashing”. Nevertheless, we see this as an opportunity to devise minimum ESG standards for traditional benchmarks alike, in order to achieve maximum impact. • As per the Amendments to regulation 2016/1011, article 23(a) does not refer to more ambitious practices than the ones already implemented by low carbon benchmarks already available today. In order the be sure to further add value, there should be clearer indications on the extent of the lower carbon emissions envisaged and linkages to the Paris Agreement goals. This information could be linked to the upcoming taxonomy the TEG will be developing in parallel.
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Meeting with Andrea Beltramello (Cabinet of Vice-President Valdis Dombrovskis)

25 Jul 2018 · Sustainable Finance

Response to Institutional investors' and asset managers' duties regarding sustainability

21 Jun 2018

Demanding the inclusion of ESG considerations in the provision of investment advice, represents an important step in the sustainable finance equation. If well defined, the recommended delegated acts amendments can truly unlock the growth potential of sustainable finance. But, in order to maximise the chances to succeed in this mission, there is a need for more clarity around the language used and the meaning of ‘ESG considerations ’, and ‘ESG preferences ’ and how these are linked to the ultimate investors’ goal and impact. What needs to be avoided at all cost, is the danger that the reference to ESG criteria remains a vague concept with no substantial links to investment returns and therefore one easy to dismiss. Particular attention also needs to be given to the way the preference towards ESG criteria is given. The specific wording ‘it meets the investment objectives of the client in question, including the client’s risk tolerance and any preferences, including environmental, social and governance considerations ’ can be interpreted as singling out one (or more) component of ESG, instead of addressing them as one. In the absence of clear definitions, diverging approaches by retailers could lead to increased confusion among clients and overlook solutions which would better take into account clients’ objectives, including their preferences for impact products. The integration of ESG factors into investment product design refers to the consideration of environmental, social and governance criteria as part of an investment process. In the draft, there is no further indication as to what this means nor entails in practice for the investment. The lack of clarity in this respect translates into increased confusion for the retail investor who is not able to see how his/her ESG related preferences and concerns are actually translate in the investment choice. In order to address this issue, there needs to be a clear reference to the wider understanding of Sustainable and Responsible Investing – SRI- the industry term used for investment strategies that incorporate ESG integration and analysis, at any level. Eurosif’s definition of SRI is clear in this respect: ‘SRI is a long-term oriented investment approach which integrates ESG factors in the research, analysis and selection process of securities within an investment portfolio. It combines fundamental analysis and engagement with an evaluation of ESG factors in order to better capture long term returns for investors, and to benefit society by influencing the behaviour of companies’. SRI includes a number of investment strategies that investors can choose from to demonstrate their ESG preferences. These are: exclusions of holdings from investment universe, norms-based screening, best-in-class investment selection, sustainability themed investment, ESG integration (one of the strategies per se), engagement and voting on sustainability matters and impact investing. Eurosif has devised these investment strategies to account for the SRI assets under management invested in Europe since 2003 and since then reports on their evolution every two years in its biennial SRI study. In order to truly enable investors to make a conscious choice and properly express their ESG preferences, the concept of ESG factors needs to be integrated as part of a wider discussion which includes the concept of Sustainable and Responsible Investment – SRI – as a whole. The assessment of preferences regarding ESG considerations should include questions (as part of a standardised questionnaire) about the willingness to invest in entities that do not pursue objectives in line with the investors’ preferences and in line with the interest to pursue an ESG objective, by choosing a specific SRI strategy (see list above). In this respect, we await the clear inclusion of ESG factors as part of suitability assessment in line with ESMA’s work.
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Response to Institutional investors' and asset managers' duties regarding sustainability

21 Jun 2018

Demanding the inclusion of ESG preferences in Distribution of insurance-based investment products, could further contribute to the mainstreaming of sustainable and responsible investment for retail clients. This initiative will certainly increase the level of involvement in sustainability of insurance intermediaries and insurance undertakings, representing an important step in the sustainable finance equation. Being able to link investment objectives and risks with those non-financial aspects, which are so interconnected to the financial ones, is key in moving forward value of ESG as part of sustainable finance. Nevertheless, and in order to maximise the chances to succeed in this mission, there is a need for more clarity around the language used and the meaning of ‘ESG preferences ’ and how these are linked to the ultimate investors’ goal and impact. What needs to be avoided at all cost, is the danger that the reference to ESG criteria remains a vague concept with no substantial links to investment returns, which would make it an easy one to dismiss. In the absence of clear definitions, diverging approaches by retailers could lead to increased confusion among clients and missing out on solutions which would better take into account clients’ objectives, including their preferences for impact-related products. In the draft, there is no further indication as to what this means nor entails in practice for the investment and if there will be a link with an impact measurement, in line with the communication on objectives as was originally foreseen for KID under PRIIPs. The lack of clarity in this respect translates into increased confusion for the retail investor who is not able to see how his/her ESG related preferences and concerns are actually translate in the investment choice and outcome. In order to address this issue, there needs to be a clear reference to the wider understanding of Sustainable and Responsible Investing – SRI- the industry term, used to describe investment strategies that incorporate ESG integration and analysis, at any level. Eurosif’s definition of SRI is clear: ‘SRI is a long-term oriented investment approach which integrates ESG factors in the research, analysis and selection process of securities within an investment portfolio. It combines fundamental analysis and engagement with an evaluation of ESG factors in order to better capture long term returns for investors, and to benefit society by influencing the behaviour of companies’. SRI includes a number of investment strategies that investors can choose from to demonstrate their ESG preferences. These are: exclusions of holdings from investment universe, norms-based screening, best-in-class investment selection, sustainability themed investment, ESG integration (one of the strategies per se), engagement and voting on sustainability matters and impact investing. Eurosif has devised these investment strategies to account for the SRI assets under management invested in Europe since 2003 and since then reports on their evolution every two years in its biennial SRI study. In order to truly enable investors to make a conscious choice and properly express their ESG preferences, the concept of ESG factors needs to be integrated as part of a wider discussion which includes the concept of Sustainable and Responsible Investment – SRI – as a whole. The assessment of preferences regarding ESG considerations should include questions (as part of a standardised questionnaire) about the willingness to invest in entities that do not pursue objectives in line with the investors’ preferences and in line with the interest to pursue an ESG objective, by choosing a specific SRI strategy (see list above).
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Meeting with Olivier Guersent (Director-General Financial Stability, Financial Services and Capital Markets Union)

17 Apr 2018 · sustainable finance

Meeting with Valdis Dombrovskis (Vice-President) and

17 Nov 2016 · sustainable/green finance

Meeting with Elina Melngaile (Cabinet of Vice-President Valdis Dombrovskis)

4 Oct 2016 · Sustainable Investment

Meeting with Maroš Šefčovič (Vice-President) and

30 Oct 2015 · creation of a network of Energy Union Business Ambassadors

Meeting with Pierre Schellekens (Cabinet of Vice-President Miguel Arias Cañete)

17 Sept 2015 · Energy Union

Meeting with Peter Van Kemseke (Cabinet of Vice-President Maroš Šefčovič)

17 Sept 2015 · on investments in sustainable energy and energy efficiency

Meeting with Heidi Jern (Cabinet of Vice-President Jyrki Katainen) and Aviva Plc

10 Jul 2015 · Sustainable investments

Meeting with Paulina Dejmek Hack (Cabinet of President Jean-Claude Juncker) and Third Generation Environmentalism Ltd

9 Jul 2015 · Capital Markets Union

Meeting with Paraskevi Michou (Acting Director-General Justice and Consumers)

12 May 2015 · Shareholders rights