EU Green Deal and NFRD review: Will the EU manage to turn strategies into actions and move towards more consistent and comparable non-financial reporting?

As the new European Commission is currently implementing the priorities set out in the 11 December Communication on the European Green Deal, CDSB’s Policy Manager, Axelle Blanchard, gives insight into the first round of feedback from stakeholders from the initial inception impact assessment consultation on the NFRD review.

The European Commission has set out improving the requirements of non-financial information as a key prioritfor its upcoming actions in the field of sustainable financefollowing the publication of the Communication on the European Green Deal last December and prior to the launch, later this year, of a new Sustainable Finance strategy.  

These policy developments happen amid intense reflections on more stringent climate commitments required at global level ahead of COP 26five years after the signing of the Paris agreement. Former Bank of England Governor and UN special envoy for climate action and finance, Mark Carney, has already stated that he will call for a mandatory adoption of the TCFD recommendations for this year’s COP 26 to boost corporate reporting requirements.  

The NFRD inception impact assessment consultation results 

Under the preparatory phase of the review of the Non-Financial Reporting Directive (NFRD)the European Commission launched a public consultation on its inception impact assessment. This first public consultation was designed to help the European Commission gather initial comments on high level policy options before the launch of a more detailed public consultation on the review of the Non financial reporting Directive itself.  

The three high level policy options were the following:  

  • Continue with the current approach, based on voluntary and non-binding guidelines;  
  • Explore the use of standards; and 
  • Revise and strengthen the provisions of the NFRD. 

The consultation was open between 30 January and 27 February and got more than 80 responses.  

CDSB was pleased to see that most responders agreed that option 3 to revise and strengthen the NFRD is the most viable path forward. Such assessment is based on the common analysis of a lack of consistent and comparable climate and environmental-related information as the result of the first years of implementation of the Directive. 

In particular, the responders showed support for 

  • including non-financial information in the management report, to better link financial and non-financial information;  
  • having a larger scope of application with more companies covered by the Directive’s requirements; and 
  • clarifying the definition of materiality. 

These responses are aligned with the recent publication of CDSB’s red lines. We believe these proposals should be incorporated into the upcoming legislative review of the NFRD to support consistent and comparable disclosure of non-financial information and make corporate reporting fit for purpose. 

In fact, facilitating the disclosure of consistent, comparable and decision-useful climate and environmental information has been at the heart of CDSB’s work for many years. The CDSB Framework is designed to help organisations prepare and present environmental information in mainstream reports for the benefit of investors, acting as a tool for regulators who can benefit from standards-ready material and a framework that can be immediately adopted or referenced as a method of compliance in regulation or guidance. 

Next steps on the NFRD review  

Following this first consultation process, the European Commission launched on 20 February a public consultation on the review of the NFRD which is ongoing until 11 June. Based on the results of the consultation, the European Commission is expected to publish a legislative proposal by the end of year.  

To keep discussion moving between policy-makers and corporatesCDSB is hosting an online event on 19 May focused driving reliable environmental and climate disclosure to deliver on the ambitions of the European Green Deal. The event will also mark the launch of CDSB’s extensive analysis of climate and environmental disclosure by major European companies to inform policy makers of the regulatory reforms needed to improve reporting in line with the Non-Financial Reporting Directive. I recommend you to attend the morning session which will reflect on the role regulation can play as a driver for reliable corporate reporting.