ESAs Respond to Proposal to Review Non-Financial Reporting Directive

The three ESAs (EBA, EIOPA, and ESMA) have submitted a joint letter from their Chairs, highlighting certain key messages, which are of particular importance for the future of the non-financial reporting regime in Europe. ESAs agree that there is a need to revise the NFRD, as the demand for relevant, reliable, and comparable company disclosure on non-financial matters goes well beyond the current legislative requirements. A central element of such a revision would be to introduce a higher level of standardization of the disclosure requirements, which companies must apply when preparing their non-financial information. In the short term, it is necessary to pursue a European standardization, which should, however, be compatible with the aim of achieving international standardization in the medium term. ESAs consider it would be important to include the detailed disclosure standards in regulatory or implementing technical standards, setting out mandatory, rather than voluntary, requirements. The absence of mandatory reporting requirements, and the resulting application of a variety of national, regional, and global disclosure frameworks, lowers the comparability between companies’ disclosures and impedes assurance regarding those disclosures. Introducing mandatory disclosure standards would be the best way to promote a change toward more relevant, reliable, and comparable disclosures.

ESAs suggest that the development of regulatory or implementing technical standards should be placed with a public body. In that context, ESAs could play a leading role in the necessary standard-setting work, having each received strengthened legislative mandates on environmental, social, and governance (ESG) matters in the recent ESA review. The ESAs are already tasked with developing regulatory and implementing technical standards on disclosure of sustainability‐related topics under their remits and would as such ensure the necessary consistency across the different disclosure standards in the sustainable finance area. In addition, ESAs would contribute to a consistent application of the disclosure standards thanks to the ability to issue guidelines, opinions, and Q&As. Furthermore, the ESAs would leverage on a sound due process based on extensive stakeholder engagement via public consultations, regular interactions with the statutory stakeholder groups and ad-hoc outreach activities as well as cooperation with the International Platform for Sustainable Finance and with other public authorities such as the European Environmental Agency and the European Union Agency for Fundamental Rights.

Further to standardization, the scope of companies to be covered is another central aspect of the NFRD revision. ESAs suggest that now would be a suitable time to expand the scope to create transparency on non-financial matters to a larger group of companies, thus also providing information on a wider scale to facilitate financial market participants in discharging their disclosure obligations under the Disclosure Regulation. The expansion should, however, be done in a proportionate way to avoid undue administrative burden on smaller companies and reflect the need to consider a simplified disclosure standard for SMEs. Finally, ESAs highlight the importance of ensuring consistency of the NFRD with other pieces of legislation in the sustainable finance area, notably the Disclosure Regulation, the Taxonomy Regulation, and the prudential disclosure requirements foreseen, for example, in the CRR for credit institutions. This is relevant both when revising the NFRD and when developing the related Level 2 disclosure standards.

Related Links

• EBA Press Release and Response
• EIOPA Press Release and Response
• ESMA Press Release and Response
• Joint Letter to EC (PDF)
• EC Consultation (PDF)

Keywords: Europe, EU, Banking, Insurance, Securities, Non-Financial Reporting, Reporting, Reporting, Disclosures, CRR, Climate Change Risk, ESG, Sustainable Finance, Proportionality, NFRD, ESAs, EBA, ESMA, EIOPA