Statement by the Association of Public Insurers on the IDW Module Declaration ESRS E1-M1 regarding the Concept of Operational Control
The Association of Public Insurers appreciates the opportunity to comment on the IDW Module Declaration ESRS E1-M1 regarding the concept of operational control . The public insurers view the Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS) primarily considering the European Commission's initiative to reduce companies' reporting obligations by 25 percent. In this regard, the association supports sustainability reporting that is consistent across various regulatory frameworks as well as numerous voluntary initiatives.
The separation of investments and own operations is both regulatory and economically sensible and is widely established.
In addition to the CSRD, insurers report on sustainability in accordance with the EU Taxonomy Regulation, the EU Sustainable Finance Disclosure Regulation (SFDR), and within the framework of Solvency II. On a voluntary basis, all public insurers have committed to the "Principles for Responsible Investment" (PRI) and consider sustainability criteria in their capital investments. Furthermore, they adhere to the sustainability position of the German insurers. All these regulatory requirements and internal initiatives are based on a separation of three areas – own operations, investments, and insurance products - which has proven effective. The approach of assigning real estate investments to own operations in reporting and/or sustainability management contradicts this established practice. Non-owner-occupied real estate (including real estate companies and funds) is held by insurance companies for investment purposes and is thus managed as part of the investment strategy, both economically and in terms of ESG-strategy. A singular allocation of these investment components to the ESRS reporting on own operations would entail unnecessary additional effort without providing any discernible added value. Moreover, it is expected that the legislator will address these issues in sector-specific standards for insurers or the capital market. National decisions should not anticipate forthcoming regulations within the respective delegated acts at the EU level.
Operational control over third party-occupied real estate within the investments of insurers is generally not present.
Operational control over emissions, energy consumption, or environmental pollution does not exist, even for properties that are 100 percent self-managed or financed. The owner can only control the type of electricity and energy supply for communal areas. For both commercial and residential properties, tenants have the freedom to make key operational decisions regarding sustainability aspects:
- Type of energy supply
The choice of electricity or other energy sources is beyond the owner's control. There is no influence over the decision to use green or conventional electricity. The owner has no decision-making power over the use of additional heating or cooling devices and their energy sources.
- Level of energy consumption
In the commercial sector, energy consumption depends on the business activities of the tenant. The owner, for example, has no control over the utilization rate of an energy-intensive production facility. Similarly, the home-office policies of an office operation are not under the owner's authority. Energy consumption in residential properties is largely dependent on tenant behaviour, such as heating habits.
- Energy efficiency and retrofitting
Key decisions that impact energy consumption and emissions lie with the tenants, such as the use of conventional light bulbs or energy-efficient LEDs. Interior energy retrofits typically depend on the tenants.
- Air, water, and soil pollution
Similarly, in the context of ESRS E2 concerning air, water, and soil pollution, the owner does not have operational control. The level of pollutants in a commercial operation is solely dependent on the production processes. The owner has no influence on whether a manufacturing company uses environmentally friendly or conventional technologies.
Additionally, there are significant legal and practical challenges in obtaining the required information on energy consumption (particularly electricity) from tenants. The owner has no legal recourse if tenants refuse to provide the relevant information.
Third party-occupied real estate in the investment portfolio should not be classified under operational control, is not attributable to the company's own operations, and should be included in the CO2 accounting under category 15 (Investments).
Amendment and Addition Proposal
Regarding the characteristics of third party-occupied real estate within the investment portfolio, the association proposes adding the following paragraph 8.3 after the two perspectives in 8.1 and 8.2:
8.3 Comprehensive Perspective
Regardless of Perspective 1 or 2, it should generally be assumed that no operational control is present for third party-occupied real estate held as investments. In particular, their greenhouse gas emissions should be included in the Scope 3 GHG emissions.
If necessary, the arguments regarding the absence of operational control and the established regulatory and economic separation of investments and internal business processes can be incorporated into the preceding sections.
The public insurers look forward to further discussions on the implementation of the CSRD and are available for any questions.
