Response to consultation on Implementing Technical Standards on amended disclosure requirements for ESG risks, equity exposures and aggregate exposure to shadow banking entities
8. Do you have any comments on the proposed additions and deletions to the sector breakdown?
With respect to the introduction of the new fossil fuel sectors exposures classification in Template 1, we emphasise the need for disclosures to remain consistent over time, to allow for comparability and tracking of decarbonisation progress.
MSCI does not support the inclusion of certain NACE codes, specifically 08.92 (Extraction of peat), 19 (Manufacture of coke and refined petroleum products) and 47.3 (Retail sale of automotive fuel) in the list of NACE codes falling under the ‘fossil fuel sector’ definition. Activities under these NACE codes are not currently listed in the Commission Delegated Regulation (EU) 2020/1818 Article 12 (c)-(f) and the Commission Delegated Regulation (EU) 2022/1288 for the purposes of defining fossil fuel sector exposures. Including these NACE codes in the Template would result in discrepancies with other sustainable finance frameworks, leading to inconsistency in disclosures and potential confusion amongst the reports’ recipients who may not be aware of the differences. This could be mitigated by excluding NACE codes 08.92, 19, and 47.3 from the proposed sector breakdown.
Should EBA decide to go ahead with its proposals, any changes to NACE codes in Template 1 should be introduced with sufficient time for implementation, as they would require substantial mapping between NACE codes and internal classifications used by data providers (e.g. GICS - Global Industry Classification Standards – proprietary classification framework used by MSCI and some other data providers).
11. Do you have any comments on the inclusion of row “Coverage of portfolio with use of proxies (according to PCAF)”?
MSCI supports the inclusion of the proposed row "Coverage of portfolio with use of proxies" in Template 1, explicitly recognising the use of proxy data according to the Partnership for Carbon Accounting Financials (PCAF) methodology. This aligns with current market practices, particularly given the limited availability of reported ESG data from SMEs and non-EU entities.
To further enhance the clarity and comparability of disclosures, EBA explicitly states that reputable third-party ESG data providers' proxy models and emissions estimates should be recognised by EBA as credible sources. This recognition should be contingent on appropriate transparency regarding the methodologies and assumptions employed in producing such proxy data. Institutions should disclose in their reports these methodologies and assumptions or reference methodologies and assumptions used by their third-party data providers. Without such transparency, there could be reduced confidence in the quality and comparability of ESG risk disclosures.
27. Do you have any further comments on Template 5 and on its simplified version Template 5A?
We note that the classification of physical risks differs between Templates 5 and 5A. This will inevitably lead to a lack of comparability between companies of varying sizes reporting under these templates. We recommend that the same approach to classifying physical risks is kept across templates. While the intention of Template 5A is to reduce the reporting burden on smaller firms, lack of comparability would severely limit the utility of the reported information.