With this announcement, Europe’s sustainable finance strategy takes another step forward. On January 28th, Valdis Dombrovskis, the Executive Vice-President of the European Commission, announced the launch of preparatory work on European non-financial reporting standards. These standards should help determine a common reporting framework for companies to relay their environmental, social and governance (ESG) data, in the same way that accounting standards allow companies to communicate their financial information.
Currently companies have several reporting tools at their disposal, including the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), and the Task Force on Climate-Related Financial Disclosures (TCFD). "The many overlapping international reporting standards and set-ups confuse companies and investors," Dombrovskis said at an event, “they also find it expensive."
Building on existing frameworks
The European Commission will invite the European Financial Reporting Advisory Group (EFRAG) to begin work on the new reporting standards, with one guiding principle: there is no need to reinvent the wheel. “The best and most widely accepted elements of what exists today will be the starting point”, said Dombrovskis.
The standardization of extra-financial information should facilitate the development of sustainable finance, particularly by allowing investors to have access to complete and comparable information. These standards make an essential contribution to Europe’s action plan on sustainable finance, which has been rapidly developing since its launch in 2018.
In recent months, there have been further announcements on sustainable finance. In December 2019, the Commission presented its European Green Deal, published its non-financial investor reporting framework, and negotiated an agreement with the European Parliament and Council on the taxonomy of green activities. All this was accomplished while making progress towards an eco-label for green financial products, for which the criteria is currently being consulted.
All that remains is reaching an agreement around common standards. This will be the mission of EFRAG, which according to Dombrovskis, should welcome the support of experts in creating these standards. France is already in support of this project. Last year French Minister of the Economy, Bruno Le Maire, entrusted Patrick de Cambourg, President of the French accounting standards authority (Autorité des normes comptables), with quality improvement of non-financial information. The June 2019 report specifically recommended establishing a European standard.
Arnaud Dumas, @ADumas5