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The review of the Non-Financial Reporting Directive is due by the end of 2020. The new rules will be an integral part of the sustainable finance initiative which is critical to enable the ambitions of the European Green Deal. We expect that more companies will fall under the scope and that the reporting requirements will become more detailed and extensive. In this snapshot, we discuss the background and share details of the upcoming revision.
Non-financial reporting today
Improving corporate transparency has become an increasingly important issue for the EU, often pushed by civil society and NGOs. By doing so, policymakers aim to better understand companies’ impact on environmental and social issues, make companies more accountable, and motivate them to improve their ESG performance.
A multitude of rules at EU level aim to aid the measuring monitoring and managing of companies’ performances and their impact on society. However, except for some sector-specific rules for the extractive and finance industries, the current rules leave a lot of leeway for companies. They can choose the way they disclose information and there is no strict specification as to the depth and detail of the information they submit. As a result, private non-financial reporting frameworks and standards remain inconsistent, making it difficult to compare and use the information.
New level of ambition
Sustainable finance is a key element of the European Green Deal, the European Commission’s flagship project to achieve a climate-neutral economy by 2050. Specifically, sustainable finance is considered a crucial tool to channel much-needed capital towards activities that support sustainability and the fight against climate change. To that end, the Commission will publish a renewed sustainable finance strategy in the second half of 2020.
Detailed reporting about the climate impact of companies is an indispensable part of this strategy as it allows investors to understand whether a company is acting sustainably and can hence be part of a ‘sustainable’ investment portfolio. While the initiative aims to reduce unnecessary costs caused by the uncertainty what kind of information to report, it could well