The Dutch Federation of Pension Funds has written to the European Commission (EC), warning that its proposed introduction of a materiality assessment in the draft European Sustainability Reporting Standards (ESRS) could negatively impact the availability of sustainability data for pension funds.

In the letter, the federation stated that the introduction of a materiality assessment would sever the “critical connection” between the Corporate Sustainability Reporting Directive (CSRD) and the Sustainable Finance Disclosure Regulation (SFDR).

EFRAG designed and delivered advice on the ESRS, which aimed to ensure alignment between CSRD and SFDR reporting.

The federation said the draft delegated act “dilutes” EFRAG’s final technical advice, with the number of disclosure requirements in EFRAG’s final advice already having been reduced by 40 per cent compared to its initial proposal.

Pension funds need reliable comparable corporate sustainability data to help support the green transition, the federation added, and need this data to meet their own reporting obligations under SFDR.

“The CSRD is essential to connect the reporting streams of the financial sector and the real economy,” the letter stated.

“The advice delivered by the European Financial Reporting Advisory Group (EFRAG) in November 2022 on the European Sustainability Reporting Standard provided this connection.

“The introduction of a materiality assessment in the draft Delegated Regulation, published on 9 June 2023, deviates from this approach and thereby would sever the critical connection between CSRD and SFDR.”

The Dutch Federation of Pension Funds said it was “very concerned” that the proposal would lead to the unavailability of data for pension funds, which could make it more difficult to translate sustainability ambitions into investment decisions.

Furthermore, pension funds would still be required to report across all principle adverse impact indicators for all portfolio companies, no matter the outcome of the materiality assessment by investee companies under the CSRD.

The federation wanted that this would shift the burden to pension funds and other market participants that remain obliged to report under the SFDR.

“It will inevitably lead to the use of less reliable and often estimated data, or possibly divestments,” the federation wrote.

“Moreover, it will undermine the consistency and comparability of CSRD and SFDR reporting.

“We believe that this represents an unwarranted and undesirable scaling down of ambitions of the Commission's sustainable finance action plans.

“We therefore urge the European Commission to reconsider its proposal and follow EFRAG’s advice.”

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