European analysts call for ESG reporting link to IFRS

New ‘Key Performance Narratives’ format also mooted

European financial analysts’ group EFFAS and its German counterpart DVFA have called for companies to “formally orient” their environmental, social and governance (ESG) reporting towards International Financial Reporting Standards.
EFFAS, the European Federation of Financial Analysts Societies, and Germany’s Society of Investment Professionals say they “strongly recommend” including ESG and corporate social reporting data as an integral part of statutory and legally required financial reporting.
“Consequently, the DVFA Committee on non-financials suggests that companies formally orient ESG reporting towards the requirements of the International Financial Reporting Standards (IFRS) as published by the International Accounting Standards Board,” they state in a new report.
The comments come in the latest version of “KPI’s for ESG – A Guideline for the Integration of ESG into Financial Analysis and Corporate Valuation”. The 200-page manual is a so-called ‘exposure draft’ seeking comment from industry practitioners.
The document also introduces the concept of “KPN” – in addition to the industry terminology KPI (key performance indicator), acknowledging that some aspects cannot be expressed sufficiently in ‘numbersalone’ and that companies deserve to be able to put data into context. “For those aspects which require further context, we have included a new format – Key Performance Narratives (KPN’s). KPNs typically consist of 1-2 specific questions which call for a precise answer with a limit of words.”
DVFA represents 400 investment firms, banks, asset managers, consultants and advisory firms while EFFAS represents 25 national professional bodies. They are aiming for a “non-costly, non-complex reporting format which reflects the thinking of economic stakeholders”.
They state: “We encourage investors, financial analysts, credit rating agencies and other vital functions in capital markets to integrate KPIs for ESG 3.0 into their valuation models and use individual KPIs or ESGs in their dialogue with companies.”
The EFFAS Commission on ESG Environmental, Social & Governance Issues, CESG, was founded in 2007 and comprises fund managers and analysts from European and global sell-side and buy-side firms, including Claudia Kruse, senior governance specialist at Dutch pension giant APG All Pensions Group.
A classification for the new version using the interactive data format XBRL is to be made available. The deadline for comments is June 30.” Link