12 May 2021

FSMA: Proposal for a corporate sustainability reporting directive. The way forward

There is a broad consensus that, after the global financial crisis and the COVID crisis, climate change is the third major risk in this century to economic prosperity and financial resilience.

The financial markets are a part of the solution to ensure the financial system is resilient in the face of climate-related risks and to support the transition to a sustainable economy more generally.

For the actors in the financial markets to play their role, the disclosure of comprehensive and comparable sustainability-related disclosure is of paramount importance. Investors in particular, including asset managers, need such disclosure by companies in order to use them in their own risk management systems and to support reporting to their own clients.

Since there are currently wide data gaps, it is the role of public authorities to step in.

In this presentation, I will point out that public authorities at national, EU and international level have to work together on this task of improving corporate reporting. Even more than the COVID crisis, during which some countries such as New Zealand could isolate themselves, the climate crisis is an inherently global crisis. To cite the metaphor Mark Carney highlights in his most recent book “Value(s)”, we are all in the same storm, but also in the same boat.

Before addressing the importance of actions at EU and global level, I would like to illustrate the issue of data gaps in ESG reporting, drawing on a study in Belgium that the FSMA, the Belgian securities and markets regulator, conducted this year.

As the supervisor of the information disseminated by Belgian listed companies, the FSMA examined if a selected group of issuers met the requirements set out in the current NFRD (Non-Financial Reporting Directive). The study concludes that on several points the reporting quality is improving. For instance, reporting on environmental and personnel policies has improved measurably. On some other topics, there is still margin for improvement.

The study also identifies a number of more general recommendations to help companies improve the quality of their non-financial reporting and to avoid a scenario in which we see an ever increasing divide between the issuers who are best in class and continuously improve their reporting quality and the others who struggle to meet the required quality standards.

To this end, companies should clearly describe the risks they identify and make more use of the double materiality perspective in climate change matters. Furthermore, companies should strive to report material information in a balanced manner. This is in order to avoid greenwashing. In addition, there is a need to clearly define non-financial targets on a short-, mid- and long term basis as well as the associated KPIs that will make it possible to measure progress. More emphasis should also be placed on links between financial and non-financial information.

The Belgian study is a clear illustration of the Commission’s findings that users’ needs are not being met across the EU. As the chairman of a national regulator, I thus fully support the initiative of the EU Commission on a new corporate sustainability reporting directive. The Commission initiative is ambitious, covering all ESG factors that influence corporate behavior for the better. In so doing, the EC positions the EU as a global leader, as it is in many other areas, by creating a so-called “Brussels effect”.

The future of sustainability reporting that provides insights into sustainability risks and opportunities also depends, in my view, on good international cooperation. That’s why, in the next part of this presentation, I will address the global initiatives taken by the IFRS Foundation and by IOSCO, since I am personally involved in both, as vice chair of IOSCO and as chair of the IFRS Monitoring Board....

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