Ferma backs EC’s proposed sustainability reporting directive but has concerns over scope

Ferma has backed the EC’s newly proposed Corporate Sustainability Reporting Directive (CSRD), but delivered a “mixed” response to some of its requirements amid concerns that four times as many companies would have to report on sustainability issues under the new rules and information would face mandatory audit. The EC delivered its proposals for the CSRD, which will reform rules on non-financial disclosure in annual reports for companies operating in Europe, yesterday. It will “revise and strengthen” existing laws introduced by the Non-Financial Reporting Directive (NFRD). The CSRD aims to create of set of rules that will, over time, bring sustainability reporting on a par with financial reporting. It will extend the EU’s mandatory sustainability reporting requirements to all large companies. This means that nearly 50,000 firms in the EU would need to follow detailed sustainability reporting standards, up from 11,000 under existing NFRD requirements. Currently, only “public interest entities”, such as listed banks and insurers, with more than 500 employees must report on sustainability. Under the proposed CSRD, all large companies, both listed and non-listed, would have to comply and the 500-employee threshold is removed. The EC is also proposing to extend the scope to include listed SMEs, excluding micro-enterprises. The EC has proposed sustainability reporting standards for large companies and separate, proportionate standards for SMEs, which non-listed SMEs can use voluntarily. The CSRD would simplify the reporting process for companies, with many currently under pressure to use an array of different sustainability reporting standards and frameworks. “The proposed EU sustainability reporting standards should be a ‘one-stop shop’, providing companies with a single solution that meets the information needs of investors and other stakeholders,” said the EC. It added that the proposals aim to ensure companies report reliable and comparable sustainability information needed by investors and other stakeholders. “It will ensure a consistent flow of sustainability information through the financial system. Companies will have to report on how sustainability issues, such as climate change, affect their business and the impact of their activities on people and the environment,” it explained. The proposed directive would also mandate audit of sustainability information. In addition, it would introduce ‘double materiality’, requiring reporting on sustainability factors affecting each company and how they impact society and the environment. The new sustainability standards are yet to be fleshed out but would be developed through a multi-stakeholder process led by the European Financial Reporting Advisory Group (Efrag). Ferma welcomed the EC’s proposal to develop a common standard on sustainability reporting as key to achieving the EU’s goal of becoming carbon neutral by 2050. “We very much welcome the commission’s objective to develop a common, harmonised European standard on sustainability reporting. It will not only facilitate the exercise, but will also create reliable, comparable and accessible data that will be extremely useful for risk managers when conducting their risk management activities,” said the federation. “For risk managers, the ability to compare and evaluate information on sustainability helps us more accurately assess risks and opportunities related to sustainability. Also, since many risk managers are involved in the production of sustainability reports for their organisations, a reporting standard will help in this respect as well,” said Ferma’s CEO Typhaine Beaupérin in a video on the federation’s website. Valentina Paduano, chair of Ferma’s sustainability committee, said the commission’s proposal to define common standards for sustainability reporting is an “important step forward in terms of transparency, accuracy and quality improvement of non-financial information of companies”. “It will help companies collect and report all needed information following a common methodology, so improving the sustainability reporting language within the EU. We believe that ERM should be part of this standard as an established method of managing risks and opportunities,” she said. But Ms Beaupérin said Ferma is “mixed” on the scope of the future legislation. “Four times as many companies that are currently required to do this reporting will now have to provide and produce sustainability information. Four times more companies – this is striking. On the one hand it is welcome because it creates more data, but on the other hand it is a big change and will take time to settle in,” she said. “We are also concerned about the proposal for mandatory audit [of sustainability information], specifically because this new standard for reporting has yet to be developed,” she added. Ferma will continue discussions with EU policymakers in the coming months on the CSRD. “The proposal of the EC is now going to be discussed by the European parliament and 27 EU member states. Ferma will have a close look at the details of the proposal to ensure these new reporting obligations are closely linked to the business strategy and targets of companies,” said Ms Beaupérin. The proposed CSRD was a part of a package of measures announced yesterday by the EC to help improve the flow of money towards sustainable activities across the EU. It also announced that the EU Taxonomy Climate Delegated Act, which aims to support sustainable investment by making it clearer which economic activities most contribute to meeting the EU's environmental objectives, is being adopted. The College of Commissioners has reached a political agreement on the text and the Act will be formally adopted at the end of May, once translations are available in all EU languages. The EC also made six amendments to Delegated Acts on investment and insurance advice, fiduciary duties, and product oversight and governance. They have the following impact: On investment and insurance advice: when an adviser assesses a client's suitability for an investment, they now need to discuss the client's sustainability preferences On fiduciary duties: the amendments clarify the obligations of a financial firm when assessing its sustainability risks, such as the impact of floods on the value of investments On investment and insurance product oversight and governance: manufacturers of financial products and financial advisers will need to consider sustainability factors when designing their financial products.

Ferma backs EC’s proposed sustainability reporting directive but has concerns over scope

Want to read this article?

Read Next

Climate change could spread malaria risk to new countries, warns International SOS

Europe records 300% surge in farmer protests this year

London market to remain closed for construction SPPI cover

Swedish risk managers told to focus on flexibility rather than resilience

European Parliament votes for ‘hard-fought compromise’ on CSDDD

Climate change could spread malaria risk to new countries, warns International SOS

Europe records 300% surge in farmer protests this year

London market to remain closed for construction SPPI cover

Swedish risk managers told to focus on flexibility rather than resilience

European Parliament votes for ‘hard-fought compromise’ on CSDDD

Want to read this article?

Read Next

Climate change could spread malaria risk to new countries, warns International SOS

Europe records 300% surge in farmer protests this year

London market to remain closed for construction SPPI cover

Swedish risk managers told to focus on flexibility rather than resilience

European Parliament votes for ‘hard-fought compromise’ on CSDDD

Related Articles