ESMA coordinates national enforcers’ supervision of sustainability reporting, contributes to the EU’s process of developing European Sustainability Reporting Standards (ESRS), monitors the development of the ISSB’s IFRS Sustainability Disclosure Standards and provides feedback to the European Commission on sustainability reporting legislation.
ESMA’s mandate on 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 the accompanying European Sustainability Reporting Standards (ESRS) – and under Taxonomy Regulation Article 8.
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. Since then, the ECEP for each year have 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 2021 was published in 2023).
In addition to the ECEP, national enforcers may decide to set further disclosure priorities which are relevant from a national perspective.
The Corporate Sustainability Reporting Directive (CSRD) – published in the Official Journal of the European Union in December 2022 – among other measures, introduces more detailed disclosure requirements and establishes mandatory European Sustainability Reporting Standards (ESRS).
The European Financial Reporting Advisory Group (EFRAG) is responsible for developing draft versions of the ESRS. ESMA is following EFRAG’s work closely and contributing to it as an observer at both the level of the Technical Experts Group and the Board.
EFRAG published its first set of draft ESRS for public consultation in April 2022. ESMA submitted a response to EFRAG’s consultation. EFRAG delivered the final first set of draft ESRS to the European Commission in November 2022.
Prior to adopting the delegated acts which establish the ESRS, the CSRD requires the European Commission to seek the opinion of EBA, EIOPA and ESMA. As part of this process, in January 2023 ESMA submitted an opinion to the European Commission on the first set of draft ESRS.
In June 2023, the European Commission published a draft version of the delegated act with the first set of ESRS for a month of public consultation. On 31 July 2023, the European Commission adopted and published the final delegated act with the first set of ESRS. The final delegated act was formally transmitted to the European Parliament and to the Council on 21 August 2023, and as the European Parliament and the Council did not object to the delegated act by the end of the 2-month objection period (21 October 2023), the delegated act is expected to be published in the Official Journal of the European Union without delay and to enter into force shortly thereafter.
The European Sustainability Reporting Standards were developed at the same time as the International Sustainability Standards Board (ISSB) prepared IFRS Sustainability Disclosure Standards. Through the International Organization of Securities Commissions (IOSCO), ESMA contributed to the ISSB’s work to develop a global baseline for international sustainability reporting standards.
During the drafting process, EFRAG and the European Commission worked with the ISSB 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, an effort which ESMA strongly supports.
ESMA’s responses to the IFRS Foundation’s and ISSB’s consultations on sustainability reporting
- Response to the ISSB’s Request for Information on its Agenda Priorities for 2023-2025 (2023)
- Response to the ISSB’s consultation to enhance the international applicability of the SASB Standards (2023)
- 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)
ESMA also contributed to IOSCO’s assessment of the ISSB’s standard-setting work which ultimately led to IOSCO’s decision to endorse the IFRS Sustainability Disclosure Standards (issued June 2023) in July 2023.
Feedback to the European Commission on legislative and regulatory set-up
Article 8 of the Taxonomy Regulation obliges companies required to publish non-financial information under the NFRD to 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 a number of FAQs 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.
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).