Following a compliance review of ESG disclosures by financial benchmarks, the European Securities and Markets Authority (ESMA) has called for changes to simplify reporting rules. The review identified inconsistent and divergent reporting practices across general ESG disclosures and specific disclosure requirements in the methodologies of climate benchmarks used to inform passive investment strategies. This was partly attributed to a lack of specific guidance on the definition and calculation of certain ESG factors, which ESMA said is hampering investors’ ability to compare benchmarks. In response, the report has provided added guidance on definitions and methodologies in a bid to clarify regulators’ expectations for benchmark administrators. In addition, ESMA has proposed reforms to streamline ESG disclosure requirements in an effort to reduce the compliance burden while ensuring high quality reporting. “Building on the findings, ESMA will continue liaising and cooperating with the national competent authorities and the European Commission on follow-up actions,” ESMA said. “These will include the need to use supervisory convergence tools to build a stronger supervisory culture across the EU and promote effective, sound and consistent supervision regarding ESG disclosure.”
