The European Financial Reporting Advisory Group (EFRAG) has submitted its recommendations to the European Commission on the possible development of European non-financial reporting standards (see EUROPE 12512/16). The roadmap, several hundred pages long, was made public on Monday 8 March.
In June 2020, the Commission had indeed asked EFRAG to provide technical advice in case the EU decided to develop non-financial reporting standards (see EUROPE 12430/22) as part of the revision of the Non-Financial Reporting Directive (NFRD) in 2021. EFRAG submitted a progress report to the Commission at the end of October (see EUROPE 12603/24).
Preparatory work has been carried out by a multi-stakeholder working group (see EUROPE 12554/21) headed by the current President of the French accounting standard setter (Autorité des normes comptables), Patrick de Cambourg.
“The proposals in the report do not constitute a first attempt at standard-setting, but rather describe the scope and structure of future sustainability reporting standards that contribute to the achievement of the EU’s policy objectives”, explained Mr de Cambourg in a statement.
54 detailed proposals
The report makes 54 detailed proposals. It is based on the premise that the EU has a “unique landscape” in sustainable development reporting as “strong foundations” for standard setting.
According to the EFRAG working group, standard-setting should be built on robust EU conceptual guidelines, addressing public good alignment, expected qualitative characteristics of information, relevant time-horizons, clear boundaries, double materiality and connectivity between financial and sustainability reportings.
The overall target architecture of standards should be coherent and comprehensive and reflect appropriate layers of reporting (sector-agnostic, sector-specific and entity-specific), it details. Presentation should preferably be organised under ‘sustainability statements’ and digitalisation should be considered from the start.
All this must be done in “realistic steps”, EFRAG clarifies.However, the development of standards should be organised in such a way as to meet the deadlines for the first application of the revised ‘NFRD’ directive.
EFRAG governance reform
The technical development of European standards on non-financial reporting will also have governance and resource implications. This is the subject of a second report, published on the same day and prepared by Jean-Paul Gauzès, Chairman of EFRAG’s Board of Directors, which makes recommendations on a possible reform of EFRAG’s governance.
Specifically, Mr Gauzès proposes to create a new non-financial reporting pillar alongside EFRAG’s existing financial reporting pillar. It would be housed within EFRAG’s current legal entity and organised as a public-private partnership, with a balanced representation of National Authorities, representatives of the civil society (including academics) and the private sector.
The report estimates that an initial additional budget of €3 million would be needed in the first years of the new pillar and stresses that EU funding should play a major role, given the public interest mission it would fulfil.
The Commission has indicated that it will carefully examine these two reports, with a view to the revision of the NFRD directive, which should be presented on 21 April.
See the report on European standards: https://bit.ly/3kZWRiL and on EFRAG governance: https://bit.ly/3em0Ox8 (Original version in French by Marion Fontana)