Insurers have been recognised as important players for sustainable finance due to their investment products and services. The European co-legislators has adopted a number of rules which apply to insurers. Catherine Hock, Vice-President, International Relations, ICMIF, explores how the Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS) can help ICMIF members in finding a common language for sustainability reporting.
Sustainable development is embedded in Article 3 of the Treaty on the European Union (EU), and as such, the European Union has demonstrated a leadership role in moving forward the United Nations’ Sustainable Development Goals (adopted by the General Assembly of the UN in 2015) and implementing the 2030 Agenda for Sustainable Development.
Sustainable development priorities were mainstreamed into the European Union’s key policies, with the most ambitious/prominent project being a package of policy initiates known as the European Green Deal, adopted in June 2021. The Green Deal makes reducing carbon emissions by 55% by 2030 and climate neutrality by 2050 legally binding. It contains initiatives covering the climate, environment, energy, transport, industry, agriculture and sustainable finance – all of which are closely interlinked.
Insurers are recognised as important players for sustainable finance due to their investments, products and services, but also through their role in the mitigation and adaptation to climate change or in managing sustainability risks. This essential role has not been overlooked by the European co-legislators which has adopted a number of (interlinked) rules applicable to insurers (see below).
In this instance/considering the scope of this article, we will only look at the Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS) and how they can help ICMIF members in finding a common language for sustainability reporting.
The Corporate Sustainability Reporting Directive (CSRD) entered into force at the start of 2023 with the aim of improving the quality and comparability of environmental, social, and governance (ESG) disclosures, which make up the concept of sustainability. In July 2023, the European Commission adopted the European Sustainability Reporting Standards (ESRS) for use by all companies subject to the CSRD. This marked another step forward in the transition to a sustainable EU economy.
The sustainability standards measure sustainability against a full range of factors: environmental; social; and governance, including climate change, biodiversity and human rights. These measurements will be key to combatting greenwashing, but above all, they will make companies’ sustainability reporting more efficient.
An important feature of the standards is the flexibility given to companies as to what they regard as relevant information relating to their particular circumstances. Reporting requirements are thus ‘subject to materiality’ and each company’s prerequisite materiality assessment will have to be audited and, for listed companies, supervised by national authorities.
The CSRD directive also provides for European standards to contribute to the convergence of sustainability reporting standards at global level by supporting the work of the International Sustainability Standards Board (ISBB).
This thought leadership article was written by Catherine Hock, Vice-President, International Relations, ICMIF
Published November 2023
The International Sustainability Standards Board (ISSB)
Set up by the IFRS Foundation with the G20’s support in the wake of COP26, held in Glasgow in 2021 and following a demand by stakeholders, the ISSB was called upon to deliver consistent and comparable sustainability-related disclosure for capital markets, similar to those it established for accounting in the early 2000s and which have been adopted by over 140 countries to date.
A first set of global sustainability reporting standards were published in June 2023: IFRS S1 provides a proportionate set of disclosure requirements for sustainability-related risks and opportunities in general; IFRS S2 focusses on climate-related disclosures. They incorporate the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) in terms of enhancing transparency.
The publication of these standards also resulted in the announcement of the closure of the TCFD’s mission by the Financial Stability Board (FSB), and of the monitoring of the compliance of the TCFD-related disclosures by the IFRS Foundation.
Alignment with other jurisdictions
As set out by the CSRD, since the publication of the first set of draft ESRS in 2022 by the European Financial Reporting Advisory Group (EFRAG), the European Commission and the ISSB have worked on ensuring coherence of their respective standards. This cooperation has resulted in a high degree of interoperability between the two sets of standards.
As a result, there will be less duplication of effort and more global comparability and the European Commission, and the ISSB will work on a guidance material to ensure that companies that are required to report in accordance with ESRS will to a large extent report the same information as companies that report against the ISSB standards.
Full interoperability is, however, unlikely because the ESRS is connected with other EU set of laws. Beyond the work with the European Commission and EFRAG, the ISSB has also set up a platform for collaboration and coordination with the United States, the United Kingdom, Japan and China.
Furthermore, the ISSB is also collaborating with the Global Reporting Initiative (GRI) working on impact materiality for companies that want or need to meet a dual materiality requirement, meaning they will be able to use the ISSB standards for the financial part and the GRIs for the impact.
Many issues still need resolving, such as the reliability of data or the practicality of complying with some provisions within imposed deadlines, yet these developments in sustainability reporting are paving the way for common baseline in sustainability reporting.
As institutional investors or insurance operators, European insurers, including mutual and cooperative insurers, have to comply with a number of interlinked pieces of legislation as shown below.
The EU Taxonomy for sustainable activities, entered into force in July 2020. It is a classification system that defines criteria for economic activities that are aligned with a net zero trajectory by 2050 and the broader environmental goals other than climate. Used in disclosure of financial products and reporting.
The Sustainable Finance Disclosure Regulation (SFDR) entered into force in March 2021. Â Financial market participants, including insurers are required to disclose information in their annual reports on the sustainability of their financial products, and to classify their funds according to various sustainability criteria, showing how they comply with the SFDR (ie sharing information on sustainable investment policy, how sustainability risks are taken into account and how sustainability objectives are achieved).
The Corporate Sustainability Reporting Directive (CSRD) entered into force in January 2023 with the aim of bringing sustainability reporting up to the same standard as financial reporting. It is applicable to large companies and all listed companies.
Companies under the scope of the CSRD will have to comply with the mandatory European Sustainability Reporting Standards (ESRS) which will be applied gradually as of  January  2024 to 2028 This set of standards supplement the CSRD relating to ESG matters by adding a double materiality to financial reporting, i.e. reporting simultaneously on matters that are financially material and environmentally and socially material.
