European Commission launches a public consultation on non-financial reporting
On 20 February, the European Commission launched a public consultation on the upcoming review of the Non-Financial Reporting Directive (NFRD). The Commission formally committed to the revision of the NFRD in its European Green Deal published in December 2019. The public consultation is looking into a number of topics, including standardisation, strengthening assurance requirements, materiality etc. The consultation will remain open until 14 May 2020. Read more
ESMA to be involved in the process of the establishment of EU non-financial reporting standards
On 19 February, Executive Vice President (EVP) Valdis Dombrovskis addressed attendees of the IFRS Foundation conference on financial reporting. In his speech, EVP said that the European Securities Markets Authority (ESMA) should be also involved in the process of establishing the European non-financial reporting standards. The future Platform on sustainable finance will also play a role in this process (note: it was agreed to create this Platform in the context of the Taxonomy regulation). Read full speech
The EP’s Committee of Economic and Monetary Affairs discusses sustainability reporting with the IASB Chair
On 18 February, the Committee of Economic and Monetary Affairs held a hearing with Hans Hoogervorst, Chair of IASB and Erkki Liikanen, Chair of IFRS Foundation Trustees. Hans Hoogervorst remains very cautious when talking about sustainability and standards. In his speech, he recognised that a lot of financially relevant information (e.g. business model or intangible assets) cannot be captured in financial statements. That is why the IASB worked on a management commentary practice statement where companies can provide explanation on their future risks. In response to MEP Paul Tang (S&D, NL) about lack of available standardised sustainability data, Hans said that at the IASB they discussed sustainability in the context of management commentary. However, in his view it is important to engage in the activities that are within the remit of the IASB. There is indeed a need for proper sustainability reporting. Hans also encouraged bodies which are already doing a great job in this area (like GRI) to get together, merge and create a global standard setter.
Research on 1000 European companies clearly shows insights into the key gaps in corporate reporting practices
On 17 February, the Alliance for Corporate Transparency launched its final report of a three–year project on companies non-financial reporting practice. This initiative analyses information that companies disclose on their environmental and societal risks and impacts under the requirements of the Non-Financial Reporting Directive.
The results show troubling poor quality of reporting on sustainability issues. Common issues, as the research identifies, are:
- disclosures are not specific enough to enable understanding of a company’s position and future developments. Companies report on their policies rather than on the outcomes of such policies and related targets, and specific information on risks and impacts
- only a small percentage of companies provide their key performance indicators
The European Commission will support the development of European standard for non-financial reporting
On 28 January, the European Commission held a public stakeholder meeting on the implementation of the European Green Deal and the upcoming EU Climate Law. Executive Vice-President (EVP) Valdis Dombrovskis delivered his speech emphasising the revision of the NFRD and that companies will have to increase disclosures on their sustainable activities. He announced that the Commission will support the development of European Standards for non-financial reporting. The Commission still needs to figure out the details, but EVP will be contacting the European Reporting Advisory Group to start preparatory work. Read full speech
Draft Circular Economy Plan
The European Commission is expected to publish the Circular Economy Plan on 10 March. Circular economy is at the heart of the new regenerative growth strategy for Europe which is necessary to achieve climate-neutrality by 2050. The plan will establish a set of interrelated initiatives to enable a strong and coherent policy framework. In the draft Circular Economy Plan, the Commission specifies a number of cross-cutting actions to address the main economic barriers in order to promote sustainable production, investment and consumption. The EC will use the following initiatives to scale up financing in the circular economy, to mention a few: enhancing disclosure of environmental data by companies in the upcoming revision of the NFRD; support a business led initiative to develop environmental accounting principles that complement financial data with circular economy performance data.
ESMA publishes its strategy on sustainable finance
On 6 February, ESMA published its strategy on sustainable finance outlining its key priorities, which are the following:
- transparency obligations
- risk analysis on green bonds
- ESG investing
- convergence of national supervisory practices on ESG factors
EFRAG European Reporting Lab: outcome of the first project on climate-related reporting
On 6 February, the Project Task Force (PTF) of Climate-related Reporting of the European Lab launched its report on climate-related reporting.
The PTF was tasked to identify good reporting practice in climate reporting and to assess the maturity in the implementation of the TCFD recommendations. The PTF also took into consideration the Non-Financial Reporting Directive and the non-binding guidelines.
The report identifies 58 examples considered as good reporting practices selected from 30 companies. Read more
MEPs confirm a political agreement on taxonomy
On 23 January, ECON and ENVI confirmed the political agreement on sustainable finance taxonomy by 85 votes, 16 against and 5 abstentions. The taxonomy regulation is meant to lay down the foundation for classification of economic activities. The political agreement has been already endorsed by Coreper and went to ECOFIN for adoption.
Green Deal Motion for a Resolution
On January 15, the European Parliament adopted its joint Motion for a Resolution on the European Green Deal by an overwhelming majority of votes: 482 votes in favour, 136 against and 95 abstentions. MEPs welcome the European Green Deal and support an ambitious sustainable investment plan to help close the green investment gap. They also call for an adequately funded Just Transition Mechanism.
The Motion for a Resolution aims for, among others:
- Increasing the EU’s climate ambition for 2030 and 2050: calls for an ambitious Climate Law with a legally binding domestic and economy-wide target for reaching net-zero greenhouse gas emissions
- Financing the European Green Deal and ensuring a just transition – insists on a rapid implementation of the Action Plan on Sustainable Finance, specifically a green label for financial products, the green bond standard and the need to integrate ESG factors in the prudential frameworks for banks
European Commission comes forward with a Sustainable Investment Plan to support the green transition
On the 14 January, the European Commission presented its so-called Green Investment Plan which will contribute to the overall goal to become a climate-neutral continent by 2050. Major investments are needed to fund the transition. The Green Investment plan is supposed to mobilise public investment and help to unlock private funds through EU financial instruments which would lead to at least €1 trillion of investments over a period of 10 years, mostly through InvestEU. Part of the plan is the so-called Just Transition Mechanism, which will be focused on fair and just green transition. Read more