In the context of current European legislation only favouring a “comply or explain” approach, responsible investors call for a clear mandatory ESG data disclosure regime for large listed and non-listed companies, and the uptake of ESG integration by institutional investors.
In responding to the recently closed European Commission (EC) consultation on non-financial reporting by companies, Eurosif (the European Sustainable Investment Forum) asks the EC to make ESG data disclosure by companies mandatory at a European level. In addition, Eurosif calls institutional investors to comply with a similar reporting regime as companies, by disclosing the extent to which ESG factors are integrated in investment decisions.
“ESG information that is material, timely and comparable across companies remains crucial for investors to make successful investment decisions,” says Matt Christensen, Executive Director of Eurosif.
This consultation process comes as a follow-up to the workshops organised by the European Commission on non-financial disclosure in 2009-2010, where it was concluded that investors seek information that is comparable across companies, consistent over time, material and reliable, linked to financial information and related to risk.
Eurosif asserts that any further European regulatory approach should combine a principle-based approach and Key Performance Indicators (KPIs), with focus on the latter. Principles alone are not enough to ensure material, timely and comparable information for investors and stakeholders and as such, the inclusion of KPIs (general for economic sectors and sector-specific) is crucial for effective corporate disclosure of non-financial information.
Furthermore, Eurosif asserts that the key element that ESG reporting should address is the extent to which company strategies are designed to address non-financial risks and how financial results are affected by such risks. This is a forward-looking approach that allows interested stakeholders, especially investors, to improve company valuation models.
In its Response, Eurosif also makes additional recommendations as to what the EC process to create a convergent non-financial reporting framework should be: (1) create a high-level working group composed of representatives of the major stakeholders within the categories implicitly defined by the EU 2009-2010 ESG Disclosure Workshops, (2) establish a deadline by which the content of disclosure and reporting framework should be agreed upon by stakeholders and (3) align work with international developments to ensure that internationally accepted requirements are developed and adopted.
In the international context in which ESG reporting is being adopted by other regions in the world, Eurosif asks the EC to ensure that Europe retains a leading position in the global financial market. “It is now a moment with consensus for the need of proper framework on ESG disclosure. The European Commission needs to use their role in a meaningful way to create clarity for investors and companies,” Matt Christensen concluded.
Eurosif’s Response to the ESG Reporting EC Consultation is available for download at: http://www.eurosif.org/policy/positions
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ESG Reporting By Companies, Finally Poised To Become Mandatory Across Europe? - After Years Of Engaging In Dialogue With Industry Stakeholders, The European Commission Consultation On Non-Financial Reporting May Lead To Legislative Initiatives On The Disclosure Of Environmental, Social And Governance (ESG) Information By Companies
Date 31/01/2011