Non-Financial Reporting in the EU: Understanding Key Players and Perspectives

Female investment officer sitting in an ecological office with lots of plants and is working on her laptop and is wearing a green sweater

The EU has published the Corporate Sustainability Reporting Directive (CSRD) - a revised version of what was previously known as the Non-Financial Reporting Directive (NFRD). This directive requires 49,000 companies across Europe to disclose Environmental, Social and Governance (ESG) aspects in their reports.

Understanding this new reporting landscape and all its stakeholders can be challenging. You might also wonder how far along the EU is in this journey towards sustainability disclosure. Following the process is important to understand the implications of this directive and its consistency with other EU regulations, like the Sustainable Finance Disclosure Regulation (SFDR) and the EU Taxonomy. I attended a recent webinar hosted by the Climate Disclosure Standards Board which was very helpful to understand the key players, their perspectives and the current dynamics. Read on to discover who’s who and where they stand. 

The Directorate-General for Financial Stability, Financial Services and Capital Markets Union (DG FISMA)

The first speaker at the webinar was Alexandra Jour-Schroeder, Deputy Director General at DG FISMA, European Commission. A fitting start to the webinar, since DG FISMA created the Corporate Sustainability Reporting Directive. This is the department responsible for the EU’s policy on banking and finance. Their purpose is to preserve financial stability, protect savers and investors, fight financial crime and ensure the flow and access to capital for businesses and consumers in the EU. 

In their view, the needs of investors are very important when it comes to sustainability reporting. However, they acknowledge that the needs of other stakeholders are equally important. When talking about sustainability information, they lean on the principle of double materiality. This means they believe companies should report on how sustainability issues affect their business, and how their operations affect the environment and society as well. They consider all ESG topics important, not just environmental ones. They admitted that the timing for the directive’s implementation is tight and that their ambitions are high. They believe good results will be achieved by building on existing standards, aligning with the EU taxonomy and using the Task Force on Climate-related Financial Disclosures (TCFD) as an umbrella. 

International standard setters like the International Financial Reporting Standards (IFRS) Foundation 

The second speaker was Michael Madelain, Trustee at the IFRS Foundation. IFRS is behind the widely applied international financial accounting standards. They are leading a working group consisting of several international standard bodies on non-financial reporting which are looking to establish a combined standard setting body for non-financial reporting. IFRS believes in globally compatible standards and a building block approach, starting with climate-related disclosures. In their view, one global standard will be difficult to achieve but there should be common definitions and metrics. Cooperation with local jurisdictions is key to achieve this. 

European Financial Reporting Advisory Group (EFRAG)

Next up was EFRAG Chair Patrick de Cambourg. He represents the Project Taskforce doing the preparatory work for the elaboration of the possible EU non-financial reporting standards. EFRAG was established in 2001. Their purpose is to “serve the European public interest by developing and promoting European views in the field of financial reporting and ensuring that these views are properly considered in the International Accounting Standards Board’s standard-setting process.” While the Corporate Sustainability Reporting Directive defines the obligations, EFRAG is meant to provide the tools for companies to comply with it. 

During the presentation, we learned that they started creating the standards. Yet, there is a lot to be done. Setting financial standards took decades. They acknowledge that trying to do the same work for non-financial standards in a few years is very ambitious. EFRAG is very process-oriented and follows a strict high-quality approach in their work. 

Local Representation: Accounting Standards Committee of Germany 

At the country-level we had Georg Lanfermann, President of the Accounting Standards Committee of Germany. He provided the perspective of a national authority on standards. This committee is the national standard setter in the area of group financial reporting in Germany. They look at the impact the CSRD will have on companies and also advise national governments. Their main concern is how companies will deal with all the different frameworks available for sustainability reporting, combined with the information requests coming from investors. 

Most of the companies affected by the directive have never reported on sustainability. They believe setting priorities is important, given the timeline for implementation, and strongly advocate for international standards. 

EU Parliament

Finnish politician Sirpa Pietikäinen represented the European Parliament, and by extension EU citizens, during the event. She agreed that the plan is very ambitious and the deadline is tight. The learning curve is also steep. In her view, the process should be less politically-driven. She emphasized the need for a scientific approach to metrics and definitions. She embraces double materiality and stated that there should be clear definitions on materials, energy, emissions, natural capital and biodiversity. She also believes there should be common and transparent risk assessment models, and found integrated reporting and auditing very important. Echoing the views of many EU citizens, she advocates for strict accountability and would like to see the same metrics for public and private parties. 

Bundesverbandes deutscher Banken e.V 

Thorsten Jagger, Associate Director and Head of Sustainability at Bundesverbandes deutscher Banken e.V, offered insights from an investor perspective. This is the association of private banks in Germany and the main lobby group for Germany's financial sector. In his view, the EU should strive for a smaller set of standards that is useful. That is, instead of having too much information that is fragmented and low-quality. Having high quality data, even in small quantities, is often better. He was also clear in stating that having EU standards might not be the best option because banks operate globally. Standards, like business, should be global. He advocates for a focus on useful information that is reliable and comparable. 

Different perspectives make implementation difficult 

As these different stakeholders show, there are many interests involved in the path to set new standards for sustainability reporting. Contradicting opinions and different approaches make this path a challenging one. On the one hand, everyone agrees that there is a sense of urgency. The stakes are high and the timeline is ambitious. On the other hand, it’s difficult to apply this type of directive on such a short timeframe. These different perspectives also show that there are still many unanswered questions and gaps that must be breached to reach a common understanding and approach when it comes to sustainability disclosure. It will be interesting to see how the discussion unfolds. One thing is clear: the ambitions are high, so is the momentum and the time has come to act and to prepare for obligatory changes in your ESG reporting systems.

Sign up for our Free  CSRD Webinar (in Dutch)

On 21 April 2021, the European Commission adopted a proposal for a Corporate Sustainability Reporting Directive (CSRD). CSRD requires all large companies (over 250 employees) and all companies listed on regulated markets to disclose environmental and social information.

In our free CSRD webinar we will cover the most important consequences of the CSRD, the impact on Dutch companies and how to prepare for it.

Webinar Information

Speaker: Prof. Dick de Waard

Date:  June 22, 2021

Time: 14:30 hrs. 

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