Stockholm (NordSIP) – Increased transparency is one of the core focuses of the EU’s sustainable finance regulatory initiative, and sustainable investing in general. Investors’ ability to observe the effects of their funds on the environment and society will allow them to internalise the real costs and gains of their investments, beyond purely financial considerations.
To that end, the European Financial Reporting Advisory Group (EFRAG) has been busy proposing non-financial disclosure standards and reforms to its governance structure to ensure it is fit for purpose. Feedback from 44 stakeholders broadly endorsed EFRAG’s proposed dual institutional set up.
The process started at the end of June 2020, when the European Commission (EC) requested that the EFRAG establish a Task Force “to develop recommendations about the possible scope, content, and structure of future non-financial reporting standard”.
The EC requested EFRAG consider “the full sustainability spectrum of environmental, social, and governance factors in line with the overall aim of the European Green Deal and Agenda 2030. This would also bring the work in line with the broader scope of the six environmental objectives of the Taxonomy regulation as well as other relevant work streams aimed at strengthening corporate sustainability”.
Consultation on EFRAG Governance Reform
On the same day, European Commissioner Vladis Dombrovskis also noted that “EFRAG is recognised by market players as the European centre of expertise on corporate reporting. It has a proven record and expertise in financial reporting” and “has demonstrated the ability to mobilise quickly expertise in non-financial reporting”.
Noting that EFRAG “was not intended as a permanent vehicle to develop European standards,” the Commissioner asked EFRAG Board President Jean-Paul Gauzès to advise him on the changes that should be made to the governance of EFRAG to ensure its fitness for this new responsibility.
As of January 18th, the proposals had been reviewed by 44 organisations or individuals specialised in the field, including the UN Principles for Responsible Investing (PRI), the Global Reporting Initiative (GRI), the Climate Disclosure Standards Board (CDSB), the Sustainability Accounting Standards Board (SASB) and the World Wide Fund (WWF).
Expressing their support for the creation of a dedicated non-financial reporting pillar within EFRAG, the stakeholders also discussed what contributions they felt they could make in the new system. “The GRI Standards, the most widely used sustainability reporting standards in Europe and beyond, are well-positioned to play a key role in achieving the Commission’s aims to improve and expand non-financial reporting in the EU,” Peter Paul van de Wijs, GRI Chief External Affairs Officer, commented.
“Furthermore, our globally applicable, independent standards can be a bridge to achieving an international solution. The EU has an opportunity to provide global leadership, as the first major jurisdiction to mandate sustainability reporting with the same rigor as financial reporting. GRI stands ready to work with EFRAG and the Commission to make this a reality.”
Figures from EFRAG