The European Single Access Point (ESAP) is part of the European Commission’s (the Commission) plan to create a functioning and integrated single market for capital across the EU by strengthening the EU capital markets, known as the “Capital Markets Union” (CMU). The CMU's key objectives are supporting a green, digital, inclusive and resilient economy, making the EU an even safer place for individuals to save and invest long-term and integrating national capital markets into a genuine single market. The Commission has looked to deliver the CMU through a range of initiatives, some targeted at specific sectors and other more general reforms including making funding more accessible to European companies, reducing the costs of raising capital, or providing incentives and removing obstacles for retail savers when making long term investments.
What is ESAP?
Reliable and easily accessible corporate information, including data on sustainability is essential for the operation of efficient capital markets. ESAP is designed to reduce fragmentation and contribute to integrating the single market by removing obstacles to the circulation of information in the EU. ESAP will be a platform on which certain financial and sustainability-related information of EU corporates will be filed in a specific digital format in order to increase transparency and improve the exchange of information for all market participants, including public and private stakeholders, such as private investors, analysts, funds and researchers.
Following the Commission’s proposal for the implementation of ESAP in November 2021, on 27 June 2022, the Council of the European Union (the Council) agreed its position on the three proposals creating the ESAP. This position formed the basis for discussion with the European Parliament during the trilogue negotiations which started on 8 March 2023. The Council and the European Parliament published their provisional agreement on 23 May 2023 following the conclusion of the trilogue negotiations.
ESAP will be a centralized ‘data space’ providing free and easy digital access to comprehensive information about EU corporates. According to the Commission’s proposal, the aim is to enable investors to find and compare EU investment products and companies and support their decision-making process. The establishment of ESAP is an important step to transition the EU capital market into a digital and sustainable economy, facilitating investments and promoting data driven sustainable finance.
There will be no additional information reporting requirements imposed on EU corporates as a result of ESAP. It will store information that is already required to be provided under existing European directives and regulations in company reports as well as information which is voluntarily filed by EU companies.
The information accessible via ESAP will make it easier for investors to identify suitable firms and products on a cross-border basis and has the potential to give greater visibility to entities that are seeking funding, including small and medium-sized enterprises and companies that have only participated in smaller national capital markets so far.
When will ESAP apply?
Under the provisional agreement, the ESAP platform is expected to be available from summer 2027. Compliance with ESAP gradually will be phased in over four years for particular EU regulations and directives:
- In the first phase, the scope of ESAP will be limited to information required under the short selling regulation, the prospectus regulation (PR) and the transparency directive (TD).
- In the second phase, (six months after publication of ESAP and 48 months after entry into force), the scope of information will be much larger and will include disclosures made under the sustainability-related disclosures in the financial services sector regulation (SFDR), the credit rating agencies (CRA) regulation and the benchmark regulation (BMR).
- In the third and fourth phases, relevant information stemming from around 20 additional pieces of legislation will be incorporated, including the capital requirements regulation (CRR), the markets in financial instruments regulation (MiFIR) and the EU green bonds regulation (EuGBR).
During the phase-in period, a regular assessment of ESAP’s functioning is envisaged to evaluate the adequacy of the platform for its users and its technical efficiency.
The European Security and Markets Authority (ESMA) is earmarked to establish and operate ESAP. The data required to be made public under ESAP shall be collected by 'collection bodies', i.e. ESMA, the European Banking Authority and national authorities, and will be overseen by the Joint Committee of European Supervisory Authorities.
Increased litigation risks?
The information being published on ESAP should already be public in most cases, as there is an obligation under the relevant directives and regulations to supply this information in company reports and other documents. However, having all current and historical information in one place may potentially increase the likelihood of claims against EU companies and products, in that it will be easier to search for and locate evidence to formulate claims, particularly where claims relate to more than one entity.
Claims could be for breach of the requirements, including under national law, deriving from the terms of specific directives or regulations or for misstatement/omission. These claims may be brought by investors who have sustained losses or could be made on other grounds from shareholders or other stakeholders, such as climate activists, as a result of such public information being easily accessible and machine analyzable. It is conceivable that the availability of significant amounts of data relating to multiple different entities may provide opportunity for data mining: this could identify potential patterns and trends which might support the advancement of claims that have, hitherto, not been available.
This potential increase in litigation risk should not, however, detract from the advantages of having this information in one place, which will be of considerable benefit to investors. Indeed, the disclosing companies may themselves find it easier having a single format for publication across all Member States and a single location/process to upload such data (although companies may need to review their policies and procedures to update for this development).
The legal implications and the evidential value of ESAP remain unclear, especially as it is not (yet) specified if there will be an “official extract from ESAP”. In practice, an official extract from ESAP would be beneficial for evidentiary purposes, for example, as proof in front of authorities, local courts, or member states' notaries.
Accelerating the green transition
Bringing an entity’s corporate and sustainability information together in one place is intended to support the objectives of the European Green Deal and boost investments in sustainable businesses and products. Examples of how this could help accelerate green investments are:
- Reporting and reducing greenwashing risk: stakeholders and investors will have access to fully analyzable data (including voluntary data uploaded by EU companies) which they can use to assess their own and other entities’ risks, dependencies, opportunities and impacts arising from ESG factors, helping them to report, benchmark to peers and to market themselves to others.
- Enhancing ESG due diligence: ESG due diligence will be simplified with easier access to publicly accessible information which would previously have been stored in multiple sources with barriers to access and associated costs for download. ESAP is set to reduce time and cost and the risk of error in many contexts, with relevance especially for mergers and acquisitions, capital markets issuance, lending and any other kind of sustainable or, indeed, non-sustainable transactions.
- Increasing integrity of ESG ratings: according to the proposal for a Regulation on the transparency and integrity of ESG rating activities published on 13 June 2023 by the Commission, ESAP is expected to give stakeholders in ESG ratings better access to information and it will serve as a source of information and input data for ESG rating providers, reducing estimations and contributing to better ESG ratings.
Liability for information published on ESAP
Concerns have been raised as to which parties have liability for the information on ESAP. EU corporates should continue to take responsibility, as required under specific directives and regulations, for the content of the documents they have prepared and submitted to ESAP. However, once submitted to ESAP, it is not clear who has responsibility for any issues which might arise with respect to the data's integrity as a result of the collection of the data and/or ESAP’s process for publication. The collection bodies will not be making wide-ranging checks on the documentation once submitted to ESAP: indeed, the collection bodies have limited validations to make, for example in respect of metadata, submission of the electronic seal, whether the information is manifestly inappropriate or abusive and the scope of the information. The collection bodies will make no other checks on the validity of the data submitted.
In its opinion of 7 June 2022 on the Commission's proposal, the European Central Bank (ECB) criticized the lack of liability for information once it has been submitted to ESAP. It assesses the above as a particular risk that undermines investors’ ability to rely on information accessible via ESAP, jeopardizing public trust and endangering ESAP’s objective of further integration of financial services. Acknowledging that the ESAP proposal is subject to change, it suggests future development of a data quality framework to provide ESAP with a level of reliability needed to achieve the purpose and also ensure that there is a framework clearly establishing the liabilities of the submitters and the collection bodies.
The ECB has also suggested that it would be useful for investors to have access to available historical data which is not currently envisaged by ESAP proposals.
Market inclusion for investors
As mentioned above, (private) investors may disproportionately benefit from ESAP, particularly in the corporate and mergers and acquisitions (M&A) space. The existing patchwork of commercial registers, agencies and other authorities collecting (corporate/commercial/finance) information for European companies is burdensome and costly. Currently, investors, or their advisors, gather this data from various existing platforms at great expense and effort. ESAP could accelerate the due diligence process for M&A transactions by providing centrally available and reliable (corporate, financial, but also sustainability) information and lower the barriers for entry for investors and companies across Europe. Collecting comprehensive and consistent information together could enhance opportunities and decisions for both investors and companies, whose capital procurement could benefit from increased visibility on a cross-border level.
The introduction of ESAP is not intended to change the publication requirements under existing directives and regulations. However, firms may be required to reassess their approach to compliance in some cases. One such example is disclosure of information under Article 10 of SFDR. Article 10 requires information to be made available to investors on financial market participants’ websites. Market practice has developed whereby these websites are often password protected as financial market participants have been concerned about the confidentiality and data protection laws of relevant jurisdictions and obligations owed to their clients. If SFDR is included in the ESAP proposal without any amendment to the scope, this would mean that financial market participants would have to make this information public regardless of the tension arising from confidentiality and data protection issues.
Although it is intended that information which is already produced by EU corporates is collected for ESAP, this information will need to be in a specific format for upload to ESAP and will need to contain specific metadata and tags. As the rules vary across the EU this may result in additional cost for companies in producing the required information in the beginning. In addition, there will be a cost for upload: the original proposal suggested that it would be EUR800 annually, reflective of the costs for obtaining a legal entity identifier, signing tools, a digital certificate, and potential filing fees charged by the collection bodies, but there is no assurance of this. Ultimately, use of ESAP could simplify processes and procedures within businesses which might eventually lead to cost savings – however this remains to be seen.
Under the provisional agreement, ESAP is expected to be online in summer 2027 and gradually phased in over the following four years.
European legislative proceedings are still ongoing (the Council and Parliament still need to confirm the agreement) and further changes are possible before the agreement is formally adopted. In addition, much of the detail is still to follow, which will be set out in ESMA’s level 2 measures. Although one of the Commission’s first CMU initiatives, there is still some way to go to achieve this part of the Commission’s CMU Action Plan.
This note is for guidance only and should not be relied on as legal advice in relation to a particular transaction or situation. Please contact one of the contacts listed here if you require assistance or advice in connection with any of the above.
Authored by Arwen Handley, Rita Hunter, Jennifer O’Connell, Nicole Saurin, Martin Schunke, Emily Julier, and Isobel Wright.