The European Commission has officially mandated the European Financial Reporting Advisory Group (EFRAG) to develop recommendations about potential EU non-financial reporting standards, a move it flagged earlier this year.
In addition, the EFRAG board president and chair of the European Lab
Steering Group has been given a mandate to consider the possible need
for changes to the governance and financing of EFRAG if it were
entrusted with the development of such standards.
The mandates were trailed
in a speech by Commission executive vice president Valdis Dombrovskis
in January, when he announced that the EC was going to “support a
process” to develop European non-financial reporting standards.
The move is in connection with the Commission’s plan for a revision
of the Non-Financial Reporting Directive (NFRD), which comes as
investors ESAs open consultation on draft investor ESG disclosure rules" href="https://www.ipe.com/news/esas-open-consultation-on-draft-investor-esg-disclosure-rules/10045101.article" target="_blank" rel="noopener noreferrer">face new environmental, social and governance (ESG) disclosure requirements under regulations stemming from the Commission’s sustainable finance action plan.
In a letter setting out EFRAG’s mandate, Dombrovsksis said the
Commission had not yet taken any decision about the future role, if any,
of standards in the context of the revision of the NFRD, but that “I
consider it necessary to already launch technical preparatory work to
allow for the swift adoption and implementation of European standards
should that be the choice included in the Commission’s proposal”.
“It will ultimately be for the Council and the European Parliament,
as co-legislators, to decide whether the use of standards should be
included in the revised NFRD and, if so, pursuant to which modalities,”
he added.
EFRAG’s preparatory work is to be carried out by a task force to be
appointed by the steering group of the European Reporting Lab at EFRAG,
with a call for candidates for this body to be issued shortly.
According to the text of the mandate, the task force is to consider
“the full sustainability spectrum of ESG factors in line with the
overall aim of the European Green Deal and Agenda 2030”.
It is also to have in mind that one of the objectives of any future
EU non-financial reporting standards would be to ensure that companies
subject to the revised NFRD disclose information that would allow
investors to meet the requirements coming their way from “at least” the
new EU taxonomy and disclosure sustainable finance regulations.
Although overall supportive of the mandate, Hilde Blomme, deputy CEO
of trade group AccountancyEurope and a member of the EFRAG Reporting
Lab, expressed some concerns about the requirements for the composition
of the task force, in particular with respect to institutional
investors’ involvement.
The mandate document states that the task force should as a minimum
include representatives from nine stated categories of stakeholder
organisations, such as non-financial corporations; financial
institutions; SMEs; NGOs; and auditors, assurance providers, and
accountants.
Another group is “other financial market participants”, as defined by
the new sustainable finance disclosures regulation, which includes
asset managers, pension funds, insurers, and pan-European personal
pension product providers.
“What will come out of this?,” said Blomme. “Do they want one of
each? We believe preparers and institutional investors are critical and
although there are references to a slew of them is the balance right?
“Hopefully we will see the really important institutional investors on this task force.”
In its consultation on the NFRD the Commission noted that investors,
companies and auditors/accountants had historically been the key
stakeholder groups with an interest in and contributing to the
elaboration of financial reporting standards. It asked respondents to
what extent they thought these groups should also be involved in the
process of developing a European non-financial reporting standard.
PensionsEurope’s answer was that representatives from IORPs must be involved.
The EFRAG-appointed task force is expected to complete its work in
early 2021, with a progress report to be released at the end of October
2020. The Commission has indicated planning to introduce a legislative
proposal for a revised NFRD in Q1 2020.
Dombrovskis mandate
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