EUU, Alm.del - 2021-22 - Bilag 788: Opfølgende høringssvar om virksomheders bæredygtighedsrapportering

Europaudvalget 2021-22
EUU Alm.del Bilag 788
Offentligt

NOTE

27. september 2022

Technical Annex supplementing the Danish consultation response of

august 8, 2022, regarding the draft standards to the Corporate Sus-

tainability Reporting Directive.

MINISTRY OF INDUSTRY, BUSI-

As announced in the Danish Government’s

response of August 8, 2022, to

EFRAG’s public hearing on the draft standards to CSRD the Danish Gov-

ernment would supplement the consultation response with additional tech-

nical comments.

If further elaboration is needed, the Danish Ministry of Industry, Business

and Financial Affairs is at your disposal.

General Aspects and Cross-cutting standards

Firstly, Denmark strongly calls for alignment with the current work on in-

ternational sustainability standards as large European companies often are

acting on the global market, hence also reporting internationally. It is im-

portant to

avoid duplication of the reporting obligations

for the Euro-

pean Companies, who may be met with reporting requirements when act-

ing outside the EU. Convergence between the ESRS and the International

Sustainability Standards currently being prepared by the International Sus-

tainability Standards Board (ISSB) is therefore of high importance. Hence,

we encourage the EFRAG to work closely together with the ISSB, to en-

sure better alignment within the frames of the Directive.

Secondly, the Danish Government finds that

several disclosure require-

ments contain key information, which must always be considered ma-

terial.

This is information which directly can be linked to the mandatory

disclosure requirements as set out in the Sustainable Finance Disclosure

Regulation (SFDR). An example of information that is necessary for finan-

cial market participants to receive from the companies in the scope of

CSRD is information relating to the Principal Adverse Impact (PAI) indi-

cators (as set out in the delegated regulation to SFDR), especially infor-

mation about GHG emissions, in order for financial market participants to

fulfill their disclosure requirements under SFDR.

For such information

the Rebuttable Presumption should not apply.

NESS AND FINANCIAL AFFAIRS

Slotsholmsgade 10-12

DK-1216 Copenhagen K

Tlf.

Fax

+45 33 92 33 50

+45 33 12 37 78

CVR-nr. 10 09 24 85

EAN nr. 5798000026001

[email protected]

www.em.dk

EUU, Alm.del - 2021-22 - Bilag 788: Opfølgende høringssvar om virksomheders bæredygtighedsrapportering

Thirdly it should be underlined that it is of

key importance that the stand-

ards are value creating

both for the users of sustainability information

and the companies reporting. It is important to ensure that the disclosure

requirements achieve the overall goal while allowing the reporting compa-

nies and authorities a swift and efficient implementation as well as avoid-

ing information overload for investors, consumers and other stakeholders

from too much data. Reporting on relevant ESG KPI’s is essential for a

fair, balanced and understandable report and this will positively contribute

to transparency.

Finally, we strongly encourage EFRAG to strengthen the guidance on the

materiality definitions and the rebuttable presumption.

Reporting on due diligence

There appears to be an inconsistency between the due diligence process

described in the draft ESRS and the due diligence process as currently be-

ing negotiated as part of the Corporate Sustainability Due Diligence Di-

rective (CSDDD). Considering that the negotiations on the CSDDD are

still ongoing, we recognize that it is a challenge to ensure the necessary

alignment. However, it is key that the due diligence process as described

in ESRS 1 para. 85-91 and Annex C under ESRS 1 (and elsewhere), is

aligned with the due diligence process described in article 5-11 of the

CSDDD.

It is crucial that the due diligence process is aligned to ensure

that the ESRS does not preempt the content of CSDDD.

The reporting

standards should constitute a meaningful last step of a company’s due dil-

igence process, which is communicating about its policies, processes, and

results. It should not dictate the substance of material due diligence require-

ments that are still being negotiated.

In this context it is important that alignment is ensured first and foremost

between the ESRS and the CSDDD, rather than between the ESRS and the

OECD Guidelines on Responsible Business Conduct. It is a priority of the

Danish Government to align CSDDD with the OECD guidelines as much

as possible

–

however, if the due diligence process in the CSDDD ends up

diverging from the OECD guidelines, we should prioritize alignment be-

tween the EU regulations, so that companies are not required to conduct

two different due diligence processes. If companies are required to adjust

EUU, Alm.del - 2021-22 - Bilag 788: Opfølgende høringssvar om virksomheders bæredygtighedsrapportering

their due diligence procedures and setup as a result of diverging EU legis-

lation, this should be taken into account when EFRAG conducts the

planned cost-benefit analysis of the standards.

While it is important to align the due diligence process proposed with the

draft ESRS and the due diligence process in CSDDD, this raises another

concern regarding different scopes of the CSRD and the proposed CSDDD.

It is currently unclear whether the draft ESRS reporting requirements re-

garding due diligence could in practice constitute a widening of the scope

of the CSDDD

–

since companies, that are not covered by the CSDDD

would be required to perform due diligence if they are covered by the

CSRD.

It is therefore important that the ESRS remains a requirement

on transparency and does not constitute material due diligence re-

quirements.

While considering the interconnectivity of the CSRD, ESRS and CSDDD,

it is important that EFRAG keeps in mind the enforceability of the regula-

tions. Supervisory authorities enforcing the CSDDD must be able to con-

duct a meaningful control and investigation based on the reporting made

by the companies using ESRS. Although there is a general statement on

due diligence in ESRS 2 DR 2-GOV 5, due diligence remains an integrated

part of the different topical standards. If it is unclear which parts of the

management report will reflect the due diligence requirements under the

CSDDD, this could prove a challenge for the supervisory authorities when

conducting their control and investigations.

Another challenge in this regard is that the ESRS integrates both risk, im-

pact and opportunities into the same disclosure requirements throughout

standards. From the perspective of the supervisory authority charged with

controlling the due diligence processes of companies under the CSDDD,

this combination could prove burdensome since this control would only

focus on negative impacts and risks. The draft ESRS does not seem to pro-

vide the needed clarity to be an effective tool for the enforcement of the

CSDDD. With this in mind

we suggest that the XBRL tagging is de-

signed to ensure that the reporting required by CSDDD is easily lo-

cated.

Environmental standards

Regarding the draft standards on environment issues, we have a general

concern with regards to inconsistency with EU environmental legislation

which can lead to confusion and overlapping reporting requirements. We

EUU, Alm.del - 2021-22 - Bilag 788: Opfølgende høringssvar om virksomheders bæredygtighedsrapportering

acknowledge that the environmental legislation is comprehensive and still

developing in some of the important areas which to a great extent covers

the double materiality of environmental impacts.

It is therefore of outmost importance that the standards are coherent

with the requirements and the wording in EU environmental legisla-

tion

such as the revised Industrial Emission Directive, Regulation on re-

porting of environmental data from industrial installations and establishing

an Industrial Emissions Portal, the Urban Waste Water directive and the

current Regulation on reuse of water as well as consistent with extended

producers responsibility, chemical legislation, waste legislation and gen-

eral environmental legislation. We look forward to seeing updated ver-

sions, which ensure this coherence.

At the same time, the

draft standards

and the related documents

should

be updated with the political commitments from the EU’s 8th Envi-

ronmental Action Programme

– i.e. that the Union’s material and con-

sumption footprints should significantly decrease to bring them into plan-

etary boundaries as soon as possible, including through the introduction of

binding EU 2030 reduction targets.

We would also like to support a streamlining of the environmental stand-

ards and draw your attention to the interlink between the standards; for

example, the link between ESRS DR E2-5

–

Substances of Concern and

Most Harmful Substances (para. 39-41) and ESRS DR E5-6 Waste. We

believe that the same requirements should apply for chemicals of concern

and most harmful substances, irrespective of whether the substances leave

the undertaking via air, water, soil, as products/services or as (hazardous)

waste. Hence,

the requirements in ESRS DR E2-5 should also apply for

(hazardous) waste.

Regarding CO

emission, we welcome the inclusion of scope 3 GHG-emis-

sions into the ESRS E1. Scope 3 GHG emissions often constitute the vast

majority of companies’ total emissions. It is essential that scope 3 emis-

sions are included in the disclosure requirements and are subject to the

measurable targets required (ESRS DR E1-3). Moreover, scope 3 GHG

emissions are within the undertakings’ sphere of influence. We are of the

opinion that

disclosure requirements on GHG emissions should not be

rebuttable

given that it is one of the Principal Adverse Impact (PAI) indi-

cators set out in the delegated regulation to SFDR. Thus, it is essential for

EUU, Alm.del - 2021-22 - Bilag 788: Opfølgende høringssvar om virksomheders bæredygtighedsrapportering

financial market participants to receive information from the investee com-

panies about their GHG emissions in order to comply with the disclosure

requirements under SFDR.

Below we have listed our comments in relation to the understanding of the

current text or suggestion for clarification to the disclosure requirements in

question:

•

ESRS E5 AG 3 (c) requires the undertaking to describe how the

undertaking will implement the requirements of the EU Circular

Economy Action Plan (CEAP). Since we do not see CEAP entail-

ing specific requirements for companies it is not possible for com-

panies to report on how they implement such requirements. There-

for the disclosure requirement should be removed.

DR E5-2 (AG 11) requires that

“…the undertaking needs to demon-

strate that the increased circular material use rate is additional…”

The concept of additionality should be explained, and there should

be more precise guiding on how to demonstrate additionality.

DR E5-5

(AG 25) requires that the disclosures include “a)

the total

weight and percentage of materials that come out of the undertak-

ing’s products and services production processes, including pack-

ing that have been designed for: durability, reusability repairabil-

ity, [etc].”

Relevant concepts are laid out in ESRS E5 AG 25, iii-ix. However,

definitions are unclear. Therefore, there should be more accurate

guidance and definitions concerning the terms listed in iii-ix.

DR E5-4 and DR E5-5, Industrial symbioses are not mentioned di-

rectly in the text. It should be clarified whether activities relating to

industrial symbiosis are encompassed in the terms reuse e.g.

•

Finally concerning the environmental standards,

we see a need for more

precise definitions and guidance

to help companies disclose the required

information in relation to ESRS E5 about resource use and circular econ-

omy.

Social standards

Regarding the social standards, we find that there is a

challenge with the

scope of

own workforce

in ESRS S1

as it risks causing confusion by cov-

ering both the undertakings’ “employees” and “non-employees”. In prac-

tice companies may not have the same data available for non-employees as

for employees. In

addition, “non-employees”

covered by ESRS S1 is a

EUU, Alm.del - 2021-22 - Bilag 788: Opfølgende høringssvar om virksomheders bæredygtighedsrapportering

mix of workers

engaged in “employment

activities”

(NACE Code N78) and

“self-employed

workers”

who supply labor based on individual contracts

with the undertaking or external arrangements such as agency workers.

This could lead to interpretation issues regarding non-employees, i.e. to

what extent they would be considered as own employees, causing co-em-

ployment risks to the undertaking. A solution could be, that “Non-employ-

ees”

are excluded in ESRS S1 and instead

reported under ESRS S2

–

Workers in the Value Chain.

In addition, it is important that only information, which is available for the

undertakings and that cannot be associated with individuals are required,

in order that there will only be disclosure requirements which can be ful-

filled in

accordance with the General Data Protection Regulation

(GDPR).

As regards the proposals concerning “fair

remuneration”,

“social

dia-

logue”,

“collective

bargaining coverage”

etc., it should be underlined that

according to the Danish labor market model the social parties are respon-

sible for regulating wage and working condition through collective agree-

ments without interference from the state. Thus, there is no legislation on

average working hours, minimum wage and reporting obligations in this

regard or on social dialogue, collective bargaining coverage etc.

The Danish social security system is based on the principle of universalism

and is tax financed and thus much different from systems in many other

EU member states. Considerations concerning different national social se-

curity systems should be taking into consideration in relation to compara-

bility.

It should be stressed that “fair remuneration” which is a new EU concept,

falls under the competence-based exception of Art. 153 (5) TFEU ("pay").

Furthermore, EFRAG should be made aware of the difficult negotiations

concerning the draft minimum wage directive. Appendix A, defined terms,

should be in accordance with EU definitions according to EU instruments

and no new terms should be introduced, e.g. on wage, pay, fair wage etc.

The definition of “fair wage” (DR S1-14 –

Fair remuneration), should be

aligned with the terminology “adequate wages” used in the CSRD article

29 (2), litra b (ii). This would also be in alignment with the terminology

used in the Directive on adequate minimum wages. The definition of "fair

wage" in Appendix A, refers to the European Pillars of Social Rights prin-

ciple 6 with benchmarks of 60 % of the gross median wage and 50 % of

EUU, Alm.del - 2021-22 - Bilag 788: Opfølgende høringssvar om virksomheders bæredygtighedsrapportering

gross average wage.

The same calculation applies to “adequate wage” as

defined in the Directive on minimum wages (recital 21).Thus, the defini-

tion of “fair wage”

in Appendix A,

should be amended to “adequate wage”

to ensure consistency between ESRS and the CSRD as well as EU defini-

tions deriving from legislative acts.

Governance standards

The disclosure requirements on governance raises several concerns. We

therefore strongly underline the importance of

aligning the standards

with CSRD.

It seems to be necessary as our analysis of the governance

standards shows inconsistency with the legal basis for several disclosure

requirements.

Several disclosure requirements seem to expand the

scope for existing reporting requirements

in the accounting directive or

other sector regulations as they are currently only applicable for listed com-

panies (either as soft law or hard law). Delegated acts cannot add, delete or

modify anything in the basic act, and can thus not expand the scope. Other

requirements seem to have no connection to sustainability, and some have

no legal basis in the directive. In the following, we have listed a (non ex-

haustive) list of disclosure requirement, where we highlight the need for

revisiting:

ESRS 2 General, strategy, governance and materiality assessment

•

DR 2-SBM 2

–

Views, interests and expectations of stakeholders

The disclosure requirement is supplemented in AG 30, that requires the

companies to provide a description of the interests, views and expectations

of their relevant key stakeholders. This includes for example the stakehold-

ers’ current views of the company’s

strategy and business model(s) and, if,

how and what steps it has taken to amend its strategy and business model(s)

to address interests, views and expectations.

It should be made clear in the standard, that there is no legal requirement

for undertakings

to include stakeholder’s views, interests and expectations

in its strategy and business model. The requirement is only to provide

transparency on whether stakeholders have had an impact.

DR 2-GOV 1

–

Roles and responsibilities of the administrative,

management and supervisory bodies

The disclosure requirement introduces obligations to report on how sus-

tainability is applied by the companies for nominating and selecting mem-

•

EUU, Alm.del - 2021-22 - Bilag 788: Opfølgende høringssvar om virksomheders bæredygtighedsrapportering

bers of its administrative, management and supervisory bodies. The dis-

closure requirement should be adjusted in accordance with the require-

ments after the directive.

G1 Governance, risk management and internal control

•

DR G1-1, 14 (g),

–

Governance structure and composition

We see no reference in the CSRD to a disclosure requirement on Govern-

ance structure and composition as required by para. 14 (g), which requires

companies to report on how stakeholder groups are represented in their

governance structure and composition

–

Thus, the DR should be deleted.

•

DR G1-2

–

Corporate governance code or policy

We find that this should only be an optional requirement, as the scope for

article 20 a) and b) is not the same as the scope for the ESRS.

•

DR G1-3

–

Nomination process

We see no requirement for this in the directive.

•

DR G1-4

–

Diversity policy

We find that this should only be an optional requirement, as the scope for

article 20 g) is not the same as the scope for the ESRS.

•

DR G1-6

–

Remuneration policy

We see no reference to remuneration policy in the CSRD, however after

disclosure requirement G1-6 undertakings shall describe the policy used

for the remuneration of its administrative, management and supervisory

bodies, and whether stakeholders' views (including shareholders) are

sought and taken into account, together with any corresponding voting re-

sults. This is already partly regulated in the Shareholder Rights Directive

II. This disclosure requirement in para. 33 should not introduce new re-

quirements for companies that are not within the scope the Shareholder

Rights Directive II.

G2 Business conduct

•

DR G2-8

–

Beneficial ownership

According to this disclosure requirement, the undertaking shall provide in-

formation about its beneficial owners and control structure. This has no

legal basis in the CSRD nor link to sustainability. Moreover, a register over

beneficial owners already exists.

Concerns regarding company law and corporate governance

EUU, Alm.del - 2021-22 - Bilag 788: Opfølgende høringssvar om virksomheders bæredygtighedsrapportering

The legal basis for several of the disclosure requirements on governance is

questionable and are not in line with neither national Danish company law

nor with Danish Recommendations on Corporate Governance, being best

practice guidelines to companies with shares admitted to trading on a reg-

ulated market in Denmark.

Neither Danish Company Law nor Danish Recommendations on Corporate

Governance require companies to take into consideration the views, inter-

ests and expectations of its stakeholders as described in the standards.

However, it is a company law principle that the management must safe-

guard the company´s interest and it is broadly recognized that the com-

pany’s interest does not only cover the

economic interest of the sharehold-

ers, but also includes employees, suppliers, creditors, society etc. Addition-

ally, the Danish Committee on Corporate Governance e.g., recommends

that the company adopts policies on the company’s relationships with its

shareholders, investors and if relevant other stakeholders in order to ensure

that the various interests are included in the company’s considerations.

Moreover, according to Danish Company Law the board of directors is

elected by the shareholders at the general assembly and not by other stake-

holders of the company. Finally, the Danish Company Law does not re-

quire companies to have sustainability competencies (or other specific

competencies) in their board of directors. The composition of the board of

directors is for the shareholders to decide.

Additional remarks

It should be noted that our comments are preliminary and do not anticipate

the Danish Government's position during the formal adoption of the Dele-

gated Regulation.

SME’s

Denmark would like to highlight the importance of the standards for

SME’s being simplified standards

e.g., they must be proportionate and

must be able to handle different sectors. Particularly standards for SME’s

in high-risk sectors should be developed as a priority. If the right setup for

non-listed

SME’s voluntary information on sustainability is established,

this will support the purpose of the strategy for sustainable finance, by

channeling private investments into the most sustainable companies. To

achieve this goal the information must be of the right quality and standards

should be made, not only for listed SME’s but also for non-listed SME’s.

EUU, Alm.del - 2021-22 - Bilag 788: Opfølgende høringssvar om virksomheders bæredygtighedsrapportering

To ensure the usability of the data, it is important that the standards for

SMEs, including voluntary standards, are accompanied by an XBRL tax-

onomy. This is of high importance in relation to the EU initiative European

Single Access Point.

Sector standards

Furthermore, we would like to highlight the importance of high-risk sectors

being prioritized in the sector-specific standards.