European Commission tells EFRAG to appoint “taskforce” to develop NFRD standards

An accountancy advisory body set up by the European Commission (EC) has been asked to draft a set of unified standards to underpin European corporate sustainability disclosures and could find its role enlarged as a result.

If taken up, the standards will be mandatory for corporate disclosures made under the Non-Financial Reporting Directive (NFRD), which is now being revised under the EU Action Plan on Sustainable Finance, to improve the quality of reporting.

In its current guise, the NFRD requires companies to disclose their performance on four sustainability issues – environment, social and employee issues, human rights, and bribery and corruption – but does not introduce a specific reporting standard or identify detailed disclosure requirements such as lists of indicators per sector.

Members must be appointed through an open call for applications and “would have to reflect an appropriate geographical and gender balance”, Dombrovskis said

While the EC is yet to decide whether or not to introduce reporting standards for the NFRD, it has emerged as a key consideration of the ongoing review. Market feedback from standards-setting body SASB, the European Central Bank and an “informal group on sustainable finance" established by the European Fund and Asset Management Association have backed the development of such a framework.

Letters sent by Commission Vice President Valdis Dombrovskis to the European Financial Reporting Advisory Group (EFRAG) formally requested the body to “establish a taskforce specifically dedicated to the preparation of the technical advice”, which could form the basis of a new reporting standard. Members must be appointed through an open call for applications and “would have to reflect an appropriate geographical and gender balance”, Dombrovskis said.

The taskforce will also include EU securities regulator the European Securities and Markets Authority, representatives from states within the European Economic Area and the Platform on Sustainable Finance – a soon-to-be established panel of experts which will advise the Commission on the future development of the EU green taxonomy and its broader sustainable finance agenda

The letters affirmed that any future reporting standards “must build on existing reporting standards and frameworks to the greatest possible extent”. This is in line with SASB’s recent call for “a globally accepted system of standards for non-financial disclosure” based on the body’s own standards and that of peer organisations such as the Climate Disclosure Standards Board, the Global Reporting Initiative, the International Integrated Reporting Council, and the Task Force on Climate-related Financial Disclosures.

Dombrovskis also noted that EFRAG was not “intended as a permanent vehicle to develop European standards” and asked the body to consider “changes to the governance and financing of EFRAG” if it were designated the governing body for reporting standards under the revised NRFD. EFRAG’s current mandate is to provide feedback to the Commission on international accounting standards

EFRAG has been asked to submit a progress report by October 30, and “final, detailed proposals” by January 31, 2021.