ESMA’s mandate on corporate sustainability reporting relates to companies with securities listed on a regulated market (i.e., issuers), including their disclosure under the Non-Financial Reporting Directive (NFRD) – soon the Corporate Sustainability Reporting Directive (CSRD) – and under Taxonomy Regulation Article 8. ESMA also contributes to the development of European Sustainability Reporting Standards (ESRS).
European Common Enforcement Priorities
ESMA coordinates national enforcers’ supervisory activities related to the reporting requirements of the Non-Financial Reporting Directive (NFRD).
The national transpositions of the NFRD became applicable in most EU Member States for reporting periods starting on or after 1 January 2017. Therefore, ESMA included its first reference to the NFRD requirements in its European common enforcement priorities (ECEP) for 2017. The ECEP for 2018, 2019, 2020 and 2021 each presented increasingly detailed recommendations in this area.
The purpose of these recommendations is to make sure that companies subject to the NFRD are aware of the topics which ESMA and national enforcers deem particularly important to cover in the non-financial information reported for a given year.
ESMA follows up on companies’ application of each year’s ECEP, among other things, in its annual report on corporate reporting enforcement and regulatory activities. For the ECEP covering year N, the report assessing their application is published in year N+2 (for example, the report in which ESMA assessed companies’ application of the ECEP covering 2017 was published in 2019).
In addition to the ECEP, national enforcers may decide to set further disclosure priorities which are relevant from a national perspective.
The NFRD gives companies the freedom to choose which reporting framework to use, if any, when preparing their non-financial information. In April 2021, the European Commission published a legislative proposal for a new Corporate Sustainability Reporting Directive (CSRD) which would, among other measures, introduce more detailed disclosure requirements and establish mandatory reporting standards. A political agreement on this proposal was reached by the European Parliament and the Council on 30 June 2022. The text of the CSRD resulting from this agreement is available here.
The European Financial Reporting Advisory Group (EFRAG) has been tasked with developing a draft version of the new mandatory reporting standards, the European Sustainability Reporting Standards (ESRS). ESMA is following EFRAG’s work closely and is contributing to it as an observer at both the level of the Technical Expert Group and the Board.
EFRAG is expected to deliver the first set of draft ESRS to the European Commission in November 2022.
Prior to adopting the delegated acts which establish the European Sustainability Reporting Standards, the CSRD requires the European Commission to seek the opinion of EBA, EIOPA and ESMA. The Commission shall adopt its delegated act for the first set of reporting standards by 30 June 2023, while the delegated act on a second set of reporting standards shall be adopted by 30 June 2024.
The European Sustainability Reporting Standards are being developed at the same time as the International Sustainability Standards Board (ISSB) is preparing IFRS Sustainability Disclosure Standards. It is important to ensure that the two sets of reporting standards are inter-operable, both to ensure helpful disclosure to investors and to limit unnecessary burden on companies. Through the International Organisation of Securities Commissions (IOSCO), ESMA contributed to the ISSB’s work to develop a global baseline for international sustainability reporting standards.
- Response to the ISSB’s consultation on the first two Exposure Drafts on IFRS Sustainability Disclosure Standards (2022)
- Response to the IFRS Foundation's consultation on changes to its constitution to accommodate an International Sustainability Standards Board (2021)
- Response to the IFRS Foundation’s consultation on sustainability reporting (2020)
Feedback to the European Commission on legislative and regulatory set-up
Article 8 of the Taxonomy Regulation requires the same companies which are required to publish non-financial information under the NFRD to also include information on how and to what extent their activities are associated with economic activities that qualify as environmentally sustainable under the Taxonomy Regulation. For this purpose, non-financial companies are required to disclose the proportion of their turnover, capital expenditure and operating expenditure associated with economic activities that qualify as environmentally sustainable.
In March 2021, ESMA delivered advice to the European Commission regarding how to specify the content, presentation and methodology of the information to be disclosed. A Commission Delegated Regulation related to this advice entered into force at the end of December 2021. The Commission has published FAQs in December 2021 (updated in January 2022) and February 2022 with guidance related to the Commission Delegated Regulation.
In its Communication on the European Green Deal, the European Commission committed to reviewing the NFRD as part of its objective to strengthen the foundations for sustainable investment. The Commission conducted a public consultation related to this review in the first half of 2020 to which ESMA submitted this response.
As required by the NFRD, the European Commission issued Guidelines on non-financial reporting in 2017 to help companies disclose relevant non-financial information in a more consistent and comparable manner.
A consultation was conducted on the update of the Guidelines during early 2019, and ESMA provided a response, highlighting that a more stringent set of requirements would help to fill the current transparency gap between financial and non-financial information.
Following the consultation, in June 2019 the Commission issued its Guidelines on reporting climate-related information which are effectively a supplement to the 2017 Guidelines.
EU green bond standard
As part of its 2018 Action Plan on financing sustainable growth, the European Commission committed to developing an EU Green Bond Standard (EU GBS). The Commission’s Technical Expert Group on sustainable finance (TEG) delivered recommendations on how to design and implement an EU GBS in June 2019.
During 2020, the Commission invited views from the public on how to take the TEG’s recommendations forward in its consultation on a Renewed Sustainable Finance Strategy (ESMA’s response here) and in a dedicated EU GBS consultation (ESMA’s response here).