France’s AMF securities regulator is calling on the European Commission to oblige European listed and unlisted companies with more than 250 employees and €40m in turnover and/or €20m on the balance sheet to report environmental, social and governance data (ESG) under the EU Non-Financial Reporting Directive (NFRD).
The French regulator, which is one of the first to go public with its response to an EU review of the NFRD, said company ESG data should also be subject to mandatory independent review and be covered by EU harmonisation rules, meaning no national reporting opt-outs. The current EU NFRD rules only apply to approximately 6000 large public-interest companies with more than 500 employees. A change in the scope could potentially treble the number of companies being obliged to report ESG data.
The AMF says the reporting format should be simplified for the companies in the 250-500 employees bracket. In addition, it says SMEs with less than 250 employees should be able to choose whether to draw up a non-financial report or not. At the end of 2019, the Commission announced the review of the NFRD as part of its drive for a European Green Deal.
The NFRD is seen as a crucial component of the potential for initiatives such as the green taxonomy within the EU’s Action Plan on Sustainable Finance to be taken up at the company level. At the time, the Commission said sustainability information reported by companies was not sufficiently reliable or comparable, some material information was not disclosed, and the relevant information was not always easy to find. The public consultation on the NFRD started on February 20 with submissions received by May 14 and legislative response expected later this year.
In its response, the AMF said the EU should focus on the way so-called non-financial performance indicators published by companies are used by investors for their own sustainability-related and risk reporting, known as the Disclosure Regulation, which outlines harmonised rules for both “financial market participants and financial advisers” on ESG disclosures.
Other recommendations put forward by the AMF for companies to report to include clear indications of how company boards look at non-financial issues. It said the Commission itself should also define principles to guide future European non-financial reporting standards within an independent, transparent body with clear relations to EU member state public authorities, clear rules on accountability of the organisation, and flexibility and agility in its operating methods. It said such a body should have a well-balanced participation of stakeholders with an interest in non-financial reporting in order to guarantee that future regulations are relevant.
In a similar call to the AMF to expand the scope of the NFRD to smaller companies, a newly formed informal group on Sustainable Finance has also launched, comprising EFAMA (the European fund management association), the Association of Chartered Certified Accountants (ACCA), Accountancy Europe, Association of German Banks (BdB), CDSB, Frank Bold, IIGCC, Schroders, ShareAction and WWF, the environmental NGO.
The group have issued a joint statement backed by BNP Paribas Aset Management and Candriam saying the NFRD should be overhauled to improve the quality, comparability, and consistency of corporate ESG information.
Their recommendations are:
- Expand the scope beyond large listed companies.
- Disclose non-financial information in the annual management report.
- Strengthen the social and governance aspect.
- Develop minimum mandatory reporting requirements.
- Build on existing reporting initiatives (to achieve comprehensive non-financial reporting).
- Keep up the international role for reporting standards.
- Ensure legislative consistency and avoid duplication of reporting legislation.