Sustainability reports: Proposals for reform from the EU Commission mark important progress
- Reform will help close the sustainability data gap
- And prepare work for the European Single Access Point
The German Investment Funds Association BVI considers the proposals published today by the EU Commission to reform the EU's Non-Financial Reporting Directive (NFRD) as very positive and urges the legislators to implement the new rules quickly. ‘It is good to see that the EU Commission wants to oblige significantly more companies than before to publish standardised sustainability data,’ says BVI’s CEO Thomas Richter. ‘This would fulfil an important requirement by making available the comparable information that institutional investors need to assess the sustainability of target companies.’ The proposed reforms should now be quickly incorporated into the directive and implemented by the member states, Richter continued. Until then, however, fund companies should be allowed to use the sustainability information currently available on the market. Given the existing ESG data gaps, the supervisory authority should not overstretch the reporting requirements for asset managers and other investors.
According to estimates by the EU Commission, the number of companies subject to reporting under the NFRD would increase from the current 11,600 to around 49,000 once the reform proposals are implemented. It is planned to cover, among others, all large companies based in the EU that meet at least two of three minimum criteria: a balance sheet total of 20 million euros, net sales of 40 million euros, and an average of 250 employees during the business year. Furthermore, the rules would apply to all listed companies based in the EU (except small enterprises) and to companies from third countries that are listed on an EU stock exchange.
The BVI also considers the Commission's proposal to oblige portfolio companies to provide their future annual financial statements and management reports in a standardised electronic reporting format (XHTML format) to be an important step forward. Moreover, the sustainability report is to be included in the management report as a separate part of it. In the view of Thomas Richter: ‘These measures are required to be able to access all company reports via a single EU data access point in the future.’ The BVI has been campaigning for such a single access point (European Single Access Point, ESAP) for some time. By including it in the management report, the sustainability information will be given enhanced value. ‘It is logical to speak of sustainability reports instead of non-financial reporting,’ says Richter. ‘Putting it like this clarifies that this information is relevant to financial performance.’
The EU Commission's draft proposals to reform the NFRD are intended to create a single EU standard for corporate sustainability reporting. As a result the directive will be renamed the Corporate Sustainability Reporting Directive (CSRD). In addition to expanding the scope of companies subject to reporting requirements and setting formal specifications for company reports, the reform proposals also contain key content-related requirements: Among other things, in future companies are to report on their sustainability goals, plans for the transition towards more sustainable activities and corresponding progress. Further information requirements cover internal company responsibilities and procedures, how companies deal with sustainability risks and any adverse effects of the company's activities on sustainability goals. According to the current timetable, EU member states must implement the amendments in national law by 1 December 2022. The new rules are to be applied for the first time to company reports for financial years beginning on or after 1 January 2023. The first sustainability reports according to the new EU standards are therefore not expected before 2024.