The future of corporate reporting continues to be a subject that attracts much attention and European efforts are not scarce. Several elements come into play when reporting is under discussion. Most often these are disclosure, transparency, materiality, and several players are involved at once: civil society, shareholders, investors.
How Do Policymakers View All This?
It is fair to say that EU legislation on public reporting has witnessed quite a few developments in the past 10 years. This period has brought to the forefront a number of developments in corporate reporting that have challenged policymakers and key stakeholders in a number of ways. Long-term considerations, digitalisation and reporting formatting have certainly populated the reporting panorama, increasing awareness of the different needs and perspectives around reporting.
On that note, companies are getting ready to embrace the future of digitalisation through the XBRL, as regulation is going to fundamentally alter the way that listed companies across Europe will report from 2020. Advancements in this field could also modernise the way public information is heralded across companies and made available to investors and, most interestingly, the broader public. This could be the fast track to reporting being made available in a more efficient way for all stakeholders.
From an industry perspective, Environmental, Social and Governance (ESG) considerations and the consequential move towards sustainable finance have been adding to new developments in the evaluation of reporting. The Task Force on Financial Disclosure (TCFD) recommendations have done much in this respect and helped build a consensus in terms of aligning climate analysis with meaning for investors’ considerations.
The HLEG Report and Its Importance
The High-Level Group on Sustainable Finance (HLEG) report, out last week, contained recommendations which highlighted the need to upgrade Europe’s disclosure rules to make climate change risks and opportunities fully transparent. Endorsing the recommendations of the Task Force on Financial Disclosure at a European level represents a concrete and valid framework for investors. Coupling the considerations linked to the TCFD recommendations with the revision of the Non-Financial Reporting Directive (NFRD) makes it easier for the European Commission to devise a disclosure action plan for the years to come.
At the same time, the HLEG recognises the need for European policy-makers to foster sustainability reporting requirements as key elements of sustainable finance at an international level. The Commission has taken good note of all these developments and yesterday launched a consultation which looks at a review of the level of implementation in the Member States to ‘assess the performance and consistency of the different developments of EU legislation in the last 10 years’ while conducting a comprehensive fitness check.
This will assess whether the public reporting obligations, including financial and non-financial reporting requirements for the EU companies with limited liability, are meeting their objectives, whether different adaptations to the public reporting acquis are consistent with one another, and finally whether the cost and burden stemming from the various legal reporting obligations are reasonable and proportionate. This fitness check will cover among others, the Accounting Directive, IAS Regulation, the Non-Financial Reporting, the Transparency Directive and a recent evaluation of IFRS (International Financial Reporting Standards).
The consultation will ask participants to share their views on the current financial reporting framework, particularly in relation to players such as SMEs and the role of IFRS for non-listed companies. It will look at whether or not the financial and non-financial disclosures in the area of ESG reporting for companies are fit for purpose. It will ask about the need to continue experimenting with integrated reporting and future options in view of technological progress. This initiative is part of the better regulation agenda and it’s a great opportunity for streamlining decision-making, considering impacts, and reducing the regulatory burden on business.
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