Our answer to NFRD consultation

Hereafter the highlights of the position paper we have joint to the answer to European Commission public consultation in perspective of the revision of the Non-Financial Reporting Directive (NFRD). Cf. my precedent post here.

Thanks to a fitness check recently finalized by the Commission services, but also to recommendations of various Institutions of the European Union, the reasons to amend the EU Non-Financial Reporting framework are well documented (see a precedent post here). Different expert bodies (EFRAG or Climate Disclosure Standard Board to name only two) corroborate the conclusions of EU public authorities on the need to act.

The EU level appears clearly to be relevant to take the lead on the global standardization of extra-financial disclosures, and we welcome the initiative of the Directorate-General for Financial Stability, Financial Services and Capital Markets to launch this public consultation.

We strongly support the idea to replace the current directive by a regulation, with the ambition to implement a recognized common European non-financial reporting standard, able to become a global one, which requires the legitimacy by development and adoption in the public sphere.

To simplify the EU Non-Financial disclosure framework, we make four very simple suggestions:

Shift to an ESG based taxonomy

By  using the widely adopted criteria of Environment (including climate AND Paris Agreement targets, with a clear reference to the compliance with 1.5°C and 2°C IPCC scenarios, but also to biodiversity and resource exhaustion issues), Social (covering current social, employee issues, human rights, health of employees and local communities) and Governance (including bribery and corruption, but also tax policy issues, C-level executives and board member responsibilities and other governance matters).

Unify the standard 

Through the incorporation of the non-binding guidelines released in 2017 and 2019, embedding at the same time TCFD recommendations and CDP methodology into the mandatory non-financial reporting obligations.

Such a standard should reinforce the double-materiality principle by requesting from companies to explicate how they define materiality, and which processes they have put in place to identify their material environmental, social and governance (ESG) risks. In this perspective, they should be obliged to produce a negative statement, explaining why some climate, biodiversity and resource exhaustion issues are considered as not material. In parallel, standardization efforts at the global level should be pursued.

Expand this mandatory framework

Mandatory to all companies operating in Europe, listed or not (not only public interest entities) as soon as they employ more than 250 people, removing at the same time the exemption for subsidiaries.

We also suggest proposing to SMEs (as defined in most of EU legislations as companies with less than 250 employees) a proportionate non-binding framework.

Last but not least, we recommend taking into consideration the particular case of financial institutions, who are both preparers and users of non-financial disclosure information and are also subject to many other disclosure requirements.

Give to non-financial reporting the same value as financial one 

By integrating it into the management report, with the same assurance requirementsto what they are for financial reporting.

Feel free to contact me if you want the full position paper.


Iconography : New-York Times Newspaper © Markus Sposke


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