Vice President Valdis Dombrovskis
Keynote speech at the first conference of the European Corporate Reporting Laboratory, organised by EFRAG
Brussels, 5 March 2019
Ladies and Gentlemen,
It is a pleasure to be here to open the first conference of the European Corporate Reporting Laboratory! Thanks to EFRAG for the invitation.
I would like to take this occasion to congratulate all the members of the Lab Steering Group and the first project task force on climate-related reporting for your appointments.
We are grateful for your willingness to share your time and your expertise.
And I would like to thank EFRAG, for enabling the Lab to become operational efficiently and on time.
There is indeed no time to lose when it comes to climate change and other sustainability crises that we face.
The coming decade will be decisive for the fate of this planet as we know it. We already are seeing the consequences of 1 degree of global warming. And unless we accelerate transition to a low-carbon economy now, we might lock ourselves into catastrophic climate change.
The EU is committed to implementing the Paris agreement and leading the global fight against climate change. But the public sector alone cannot move mountains. We need more private investment to scale up renewable energy, develop options for storing surplus energy, and decarbonise our economy. And we need to rethink the ways the financial system approaches sustainability, transparency, and long -term risks.
This is why last spring, we put forward a 10-point Action Plan to scale up Sustainable Finance, followed by three legislative proposals.
Our first proposal was to create an EU classification system for sustainable economic activities, known as a taxonomy. This will help investors and companies to better understand what is green and sustainable. Our Technical Expert Group on sustainable finance is currently preparing the substance of taxonomy, so it can be ready by the time the regulation is adopted.
Then, we proposed to give climate-conscious investors better tools to measure their performance, by setting EU standards for low-carbon benchmarks. And I am pleased that we recently concluded negotiations with the European Parliament and the Council on this proposal.
Finally, we proposed that investment managers should disclose how they take sustainability issues into account. In addition, those investment managers that market their products as sustainable will have to disclose how they achieve those objectives. On this proposal, negotiations are currently ongoing for a deal at the EU level. And I call on both co-legislators to reach an agreement still before the European Parliament elections.
All three of these legislative proposals depend to some extent on good disclosure of non-financial information by companies. This is why there is an important part of our Action Plan that is devoted to corporate disclosure, so now let me turn to this.
Not so long ago, a company’s corporate social responsibility report was mainly a marketing tool.
It was often strong on nice photos, but not on much else. Company boards were not very concerned about the content, and mainstream investors took little notice… However, with the urgency of climate change, this is changing very rapidly. Non-financial reporting is moving from the margins to the mainstream.
This can be seen for example in the attitudes of national supervisors:
last year, the Swedish financial market supervisor pointed out that only around 1/3 of companies have clear routines for identifying and managing sustainability-related risks.
And according to recent analysis by the Dutch financial market supervisor, company reporting on the risks and opportunities of climate change is still minimal and needs to be accelerated.
We also see this change in attitude among central bankers of the G20 countries. They were the ones who established the Financial Stability Board’s Task Force on Climate-related Financial Disclosures.
Thanks to the Non-Financial Reporting Directive, the EU already has a head-start in this area.
This Directive requires large companies, banks, and insurance companies to disclose material environmental risks, and how they are managed. It both anticipated and accelerated the move of sustainability reporting from the margins to the mainstream. And we have one of the architects of this directive here today, Mr Richard Howitt.
One of the most innovative aspects of this directive is its dual perspective on the reporting of sustainability issues. One perspective is of course how the company is impacted by risks and opportunities related to sustainability issues, such as climate or human rights. But the Directive also takes into account a second perspective, namely the impact that the company has on those issues.
In the history of corporate reporting, this was quite a radical idea. And as the new laboratory starts its work on innovations in corporate sustainability reporting, it is worth keeping that double perspective in mind.
It is especially interesting to note that these two perspectives are not always so separate after all.
A company that has significant negative impacts on the environment or on society should expect, sooner or later, to see that translate into financial risks and costs. And a company that helps to solve sustainability issues should see financial reward, provided we get the supporting policies right.
Many leading European companies understand that. And this is where the role of the European Reporting Laboratory comes in. We want you to help identify the good, innovative reporting practices of leading companies, and to help spread such practices.
In parallel, the Commission will be working full speed to improve corporate disclosure of climate change risks. Already, companies are filling out many different sustainability surveys. But despite their efforts, investors often say they lack the high-quality information they need to adopt climate-friendly investment principles.
This is why the Commission will update its non-binding guidelines, to integrate the recommendations of the FSB's task force on climate related financial disclosures. This should help companies disclose climate information in a more consistent and comparable manner.
And in line with the non-financial reporting directive, these guidelines will go also one step further than the task force. The new guidelines will not only look at how the climate affects companies, but also how companies affect the climate.
Two weeks ago the Commission published the draft guidelines on climate-related reporting for online consultation. So I encourage all of you to respond to this. We intend to publish the final version of those guidelines by summer, together with a Fitness Check on the overall framework for corporate reporting in Europe.
The fitness check will be the first opportunity to take stock of the impact of the Non-Financial Reporting Directive. It will then be for the next Commission to look at the evidence and to decide whether to propose a revision of the Directive.
Ladies and Gentlemen, let me conclude.
Making the financial sector more sustainable will be a core part of your work, as it has become an important part of my work. With the European Corporate Reporting Lab, you will help companies and investors to seize the opportunities of the low-carbon transition. And you will help them to work for the benefit of society, the climate, and the environment. So I wish you all the success in this important venture, and I look forward to seeing the results.
Thank you very much!