The revision of the NFRD is an “opportunity to extend the scope and quality” of reporting by companies to ensure their stakeholders have the “information they need in the context of a transition to a more sustainable business model”, according to ACCA UK.
The association has said the Covid-19 crisis has “further exacerbated” the urgent issues and risks affecting businesses globally that need to be addressed, and it’s also highlighted that economic, social, environmental and governance (ESG) aspects need to be considered as a whole.
ACCA said it believes the NFRD review can be a “decisive step” towards improving the quality, comparability and consistency of corporate reporting, including ESG information. But added this requires “bold decisions” and should start with a clean sheet.
Richard Martin, head of corporate reporting at ACCA, said: “We’d like to see a revision of the Directive that would withdraw its articles 19 and 19A and replace them with a new requirement for a comprehensive and high quality annual report that covers all material aspects of a company’s business model, strategy, performance, position, risks and prospects integrating financial and non-financial aspects in a balanced and holistic explanation.
“This might be extended to replacing Article 20 and incorporating the key aspects of governance that should be reported.”
ACCA said that the new EU legislation for this annual management report should provide the overall requirements for better corporate reporting, and this would be best supplemented by reporting standards that set out the more detailed requirements.
ACCA added it believes that all listed companies have “responsibility” to report to their investors and should therefore be within the scope of the reporting requirements.
Richard Martin added: “As much as possible, we’d like to see any NFR standards to be principle-based and generally applicable to the wide range of companies that will be involved. We however recognise that there may be some elements that need to be sector-specific.
“The existing International Integrated Reporting Framework (IIRC) which has been applied by many leading organisations, should be a key source for the legislation and any framework standard.”
On materiality, ACCA also believes that the definition in Article 2 would need to be broadened beyond its reference to the financial statements and the users would have to be extended beyond investors and creditors to include society.
Martin concluded: “Our contribution to the consultation has been sent to the European Commission, and we now look forward to contributing to the debate once the new proposals will be published.”