EC Consults on Review of Non-Financial Reporting Directive
EC is launched a consultation on the review of the Non-Financial Reporting Directive or NFRD (Directive 2014/95/EU, as part of its strategy to strengthen sustainable investment in Europe. The Directive requires certain large companies to include a non-financial statement (for example, on environmental or social issues) as part of their annual public reporting obligations. The consultation is intended to collect views from across EU on possible reforms or improvements that could be made to the Directive. The consultation ends on May 14, 2020 and the feedback from this consultation will feed into the EC impact assessment on the review of the Directive. EC also published the remarks given by the Executive Vice-President Valdis Dombrovskis, at the IFRS Foundation Conference. Mr. Dombrovskis discussed ongoing and potential developments in the areas of the non-financial reporting, reporting in the European Single Electronic Format, and disclosures related to sustainable finance.
A review of the Non-Financial Reporting Directive is an essential part of the effort of EC to scale up sustainable finance by improving corporate transparency and providing all stakeholders with more comparable and relevant information on sustainable business activities. In addition to this public consultation, EC will also conduct targeted surveys that will be addressed to small and medium-size enterprises and to companies under the scope of the Non-Financial Reporting Directive. The targeted surveys will collect more detailed opinions and data from companies on certain issues, including costs related to non-financial reporting. In addition, the services of EC will soon launch a public consultation on a Renewed Sustainable Finance Strategy to seek stakeholder views on other issues related to sustainable finance, including questions on sustainable corporate governance.
EU rules on non-financial reporting only apply to large public-interest companies with more than 500 employees. They cover approximately 6,000 large companies and groups across EU, including listed companies, banks, insurance companies, other companies designated by the national authorities as public-interest entities. The NFRD identifies four sustainability issues (environment, social and employee issues, human rights, and bribery and corruption) and with respect to these issues it requires companies to disclose information about their business model, policies (including implemented due diligence processes), outcomes, risks and risk management, and key performance indicators relevant to the business. It does not introduce or require the use of a non-financial reporting standard or framework, nor does it impose detailed disclosure requirements such as lists of indicators per sector.
In addition to the provisions of the NFRD, several other EU legislative acts require disclosures of sustainability-related information for financial sector entities:
- The Regulation on prudential requirements for credit institutions requires certain banks to disclose ESG risks as of June 28, 2022.
- The Regulation on sustainability‐related disclosures in the financial services sector requires financial market participants to disclose their policies on the integration of sustainability risks in their investment decision-making process and the adverse impact of investment decisions on sustainability factors, as of March 10, 2021.
- The Regulation establishing a framework to facilitate sustainable investment (the Sustainable Finance Taxonomy) creates new reporting obligations, including for companies subject to the NFRD, starting in December 2021.
Related Links
Comment Due Date: May 14, 2020
Keywords: Europe, EU, Banking, Insurance, Securities, Sustainable Finance, Disclosures, Reporting, Climate Change Risk, Non-Financial Reporting, EC, ESG
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Scott Dietz
Scott is a Director in the Regulatory and Accounting Solutions team responsible for providing accounting expertise across solutions, products, and services offered by Moody’s Analytics in the US. He has over 15 years of experience leading auditing, consulting and accounting policy initiatives for financial institutions.
Previous Article
OCC Consults on Information Collection on Home Mortgage DisclosureRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.