ESMA: The Increasing Importance of ESG Disclosures
On 2 April 2020, the European Securities and Markets Authority (ESMA), the EU securities markets regulator, published its Annual Report on enforcement and regulatory activities related to corporate reporting within the European Economic Area (EEA). Presenting the 2019 activities of ESMA and of European accounting enforcers, the report examines the compliance of financial and nonfinancial statements provided by European issuers. The report demonstrates the increased attention paid by regulators to environmental, social, and governance (ESG) disclosures.
ESMA’s efforts have focused on increasing convergence by harmonizing the enforcement of the application of the new International Financial Reporting Standards (IFRS), including IFRS 9, Financial Instruments; IFRS 15, Revenue from Contracts with Customers; and IFRS 16, Leases.
According to Steven Maijoor, ESMA chair,
A harmonized European approach to the application of IFRS is key to ensuring that investors receive high quality and relevant financial information. In 2019, ESMA and European enforcers focused on the new accounting standards to ensure a convergent application and this effort will continue in 2020.
Investors are also increasingly demanding reliable and relevant disclosure on ESG factors. Examinations of non-financial statements during 2019 show that further efforts are needed from European issuers. Together with national enforcers, ESMA will continue its focus on this area to ensure that investors are provided with high-quality ESG information.
To support this work ESMA is ready to assist the European Commission, as part of its review of the Non-Financial Reporting Directive, to ensure that appropriate standards for non-financial reporting are established.
Given the increased importance of company ESG disclosures, European enforcers increased their enforcement activities on nonfinancial information in 2019. As a result, enforcers examined 937 nonfinancial statements or 35% of the total estimated number of issuers required to publish a nonfinancial statement — a significant increase compared with the 819 examinations undertaken in 2018.
In addition to these reviews of financial and nonfinancial statements, European enforcers examined 712 management reports during 2019 to assess whether the presentation and disclosure of alternative performance measures (APMs) were in compliance with ESMA’s Guidelines on APMs.
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