EUROPE: EFRAG Sets Solid Foundations for the Establishment of Mandatory EU Sustainability Reporting Standards

Thursday March 18 2021

The European Financial Reporting Advisory Group (EFRAG) has published two reports submitted to the European Commission setting out recommendations on the development of E​U sustainability reporting standards.

EFRAG´s proposals for the standard-setting process are positive as they:

• ​Recognise the “insufficient quality of sustainability reporting” and the “specific challenges financial institutions face in reporting their sustainability impacts”. By addressing the inconsistencies between the recently adopted sustainable finance legislative initiatives, mandatory European Sustainability Reporting Standards (ESS) can improve the integration of ESG into investment decisions and support the fulfilment of asset managers´ own disclosure requirements. For example, disclosures following the ESS under the revised NFRD would serve as the primary source of input for financial institutions´ reporting requirements imposed by the EU Taxonomy KPIs and the SFDR.
• Aim to operationalise the double materiality concept and strengthen the interactions between impact and financial materiality perspectives. This link could be supported by the proposed integration of sustainability statements in management reports.
• Recommend improving the quality, availability, and usability of sustainability reporting “in terms of reporting structure and presentation”, facilitating its digitisation. EFAMA believes that ESS disclosures should be channeled into the European Single Access Point, which should prioritise the centralisation of ESG company data on the principle of open access.
• Set strong conceptual guidelines that strike the right degree of inclusiveness when defining the range of stakeholders and boundaries of value chain reporting. These would be complemented by governance duties for corporate directors under the Sustainable Corporate Governance initiative.
• Recognise the need for an urgent solution, and that the ESS should follow a phased, “climate first approach”, prioritising disclosures with “advanced standards on climate change”.
• Recommend providing input and contribute to international standard-setting initiatives in a “co-constructive” spirit.”

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