The EU’s top financial markets authority on Thursday invited the European Commission to clarify new sustainability reporting requirements for European companies and to make its legislation for non-financial reporting standards more consistent with other pieces of EU legislation.
Presenting its opinion on recently drafted standards for sustainability reporting, the European Securities and Markets Authority, Esma, said this first set of standards bolsters investor protection and does not undermine financial stability. It noted however some issues need to be addressed to move the standards “from broadly capable to fully capable” of meeting their objectives.
Enabling broader accountability
Esma chair Verena Ross welcomed the work done by Efrag, the European financial reporting group, as a “major achievement.” “These standards will increase the consistency and quality of information flowing through the sustainable investment value chain. They will also enable broader accountability of European businesses for their sustainability commitments and impacts vis-à-vis retail investors,” she said.
The standards, known as the European Sustainability Reporting Standards, or ESRS, could come into force as soon as 2025 and would require companies in Europe to accept a future in which their reporting data on sustainability and their ESG impact will be just as important as data on their financial performance.
Non-EU companies also will be subject to these requirements. “The landscape is going to change because preparers are going to offer reliable data,” Patrick de Cambourg, chair of the EU taskforce on sustainability reporting standards, part of Efrag, told Investment Officer last year.
Second leg of reporting
The new reporting standards will apply to all entities in the EU that employ more than 250 people, which means some 55.000 companies in the EU that collectively represent more than 50 percent of the EU’s economy.
“The purpose is to create sustainability reporting as a second leg of standardised coverage reporting alongside financial reporting,” De Cambourg has explained. “So in fact, corporate reporting would walk on two legs, which is better by the way - to walk on two legs, under the control of the governance and under the scrutiny of stakeholders.”
Efrag’s ESRS task force in November agreed the first set of standards. Esma applied an assessment framework with four detailed criteria to prepare its opinion. These criteria asked if iot promotes disclosure of material sustainability information of high quality; is conducive to consistent application in terms of both content and format; is consistent and interoperable with other relevant EU legislation within ESMA’s remit; and promotes interoperability with global standard-setting initiatives for sustainability reporting to the greatest extent possible, while taking account of the EU’s sustainability requirements and objectives.