Experts release advice to EU on overhauling corporate reporting rules

The Task Force on Non-Financial Reporting Standards has published 54 recommendations to the European Commission on how it should build sustainability reporting standards into the revised Non-Financial Reporting Directive (NFRD).

The Taskforce, established last year by the European Financial Reporting Advisory Group (EFRAG), is chaired by Patrick de Cambourg, President of the French standard-setter ANC, and includes representatives from MSCI ESG Research, Groupama Asset Management, the London Stock Exchange Group and the US Institute of Management Accountants.

It insisted in the report that “double materiality assessments are key to proper sustainability reporting”, meaning companies must assess both financial material topics and those material to society and the environment. Its suggestions include requirements for companies to disclose their level of alignment with the Paris Agreement and other EU or international environmental goals. 

The body also said that standards should not be “constrained to matters that are within the control of the reporting entity”, adding: that they “should also include risks, opportunities and outcomes ‘attributable to or associated with other entities/stakeholders beyond the financial reporting entity that have a significant effect on the ability of the financial reporting entity to create value’”. 

The report recommends that standards should include sector-agnostic, sector-specific and entity-specific elements. Reporting should address environmental, social and governance topics and should be done across strategy, implementation and performance measurement, it said. 

The NFRD outlines the rules for large European-listed companies when it comes to ‘non financial’ information. Currently, those rules are vague, and apply to just a small percentage of firms in the EU. As part of the European Commission’s broader Action Plan on Financing Sustainable Growth, it is revising the NFRD to make it more prescriptive and potentially wider-ranging in terms of inclusion, and is expected to release its new plans on April 21st. 

The Taskforce warns that such an update must be compatible with other new policies, such as the Sustainable Finance Disclosures Regulation and the EU Taxonomy, as well as existing reporting and accounting practices. More broadly, the EU should contribute to global convergence and coherence regarding sustainable development and reporting, it added.

It proposes implementing the rules in “realistic phases”, with the first set allowing companies to report pursuant to the revised NFRD for reporting year 2023.

In a second report published today, Jean-Paul Gauzès, EFRAG Board President, proposed a new ‘non-financial’ reporting pillar alongside EFRAG’s existing financial reporting pillar. This addition would be housed within EFRAG’s current legal entity and organised as a public-private partnership, with a balanced representation of National Authorities, representatives of the civil society (including academics), and the private sector.