Ladies and gentlemen
Over the past weeks, I have been talking a lot about the priorities of the new European Commission.
Not so surprising, perhaps – we are at the start of a new five-year mandate, there is a great deal to do and the new team has hit the ground running.
Five years may seem a long time. But in fact, the clock is ticking.
There are two major areas where Europe needs to act urgently.
Both have a direct impact on the world of corporate reporting.
The first is the fight against climate change.And with it, the importance and necessity of sustainable finance to help turn Europe climate-neutral by 2050 .
The second is how to make the most of digitalisation and new technologies.
Each of these brings a series of challenges.But many opportunities as well.
As we know, investors look at corporate reporting for timely, reliable and high-quality information as a primary tool for making informed decisions.
The green and digital transformations directly affect what information the public needs from companies, and how companies provide it.
Investors now want a much broader range of information so they can assess companies' long-term financial performance and value creation.
They want to go beyond backwards-looking data. They need to know a company’s status in the wider value chain, what it stands for and where it is heading next.
This has led to a wide-ranging debate about whether corporate reporting still meets its objectives, whether it is keeping up with social, economic and technological developments.
So the title of your event today is very apt.
We are facing a changing environment. And, as ever, we have to evolve, adapt and do so quickly.
That goes for policy-makers too.
I will begin with sustainable finance, which is an important element of the Commission’s proposed Green Deal.
As part of this, we intend to review the Non-Financial Reporting Directive during 2020.
I would encourage all of you to respond to the public consultation on the review, which we will launch in the coming weeks. Your input will be invaluable in this process.
In this context, the Commission will ask the European Financial Reporting Advisory Group - or EFRAG - to start preparatory work on non-financial reporting standards as quickly as possible.
Since the EU’s laws on sustainable finance will start applying over the next two or three years, we will need better quality – and more comparable - information from issuers and other investees.
To me, this means that other bodies too should be involved in developing EU non-financial reporting standards.
These include the European Securities Markets Authority, which plays an important role in setting standards for sustainable finance disclosures and transparency.
Recently, in the taxonomy regulation, the European Parliament and Member States agreed to create a Platform on sustainable finance. It will bring together experts from the public and private sectors, including the European Environment Agency and the European Supervisory Authorities.
In my view, by developing the taxonomy criteria, the Platform will also play a part in the process for setting ESG standards for corporate reporting.
However, companies and investors operate globally. They do not want to deal with a host of incompatible reporting requirements or standards.
It is far too costly, time-consuming and inefficient.
Our work on sustainable finance must take this global aspect into account.
The EU cannot do this alone.
Given that today’s event is co-organised by the International Financial Reporting Standards Foundation, let me reiterate that.
The EU is happy, of course, to take the lead. But: we are also open to working with all organisations that have advanced the cause of sustainability and non-financial reporting.
And there is a long list of them – most obviously, the International Accounting Standards Board.
Then, the Task Force on Climate-related Financial Disclosures, whose recommendations have been widely recognised.
Last year, the Commission issued guidelines to companies on how to implement these recommendations. I hope that the Task Force will work with us to develop climate-related reporting further.
Let me also take this opportunity to welcome the recent report on climate-related reporting from the European Reporting Lab, hosted by EFRAG.
We have also seen valuable contributions from many other initiatives. I invite all public and private standard-setters from across the world to work together with the EU.
Here, I would mention the report on non-financial reporting prepared by Patrick de Cambourg, chairman of the French Accounting Standards Authority. Patrick is here with us today and his report has some useful ideas to reflect on.
Last but not least: the International Platform on Sustainable Finance.
This was set up by the Commission late last year to work with like-minded countries around the world. It aims to promote policy coordination on green finance and scale it up globally, including on sustainability disclosures.
Ladies and gentlemen
Our work to develop non-financial reporting will be open, transparent and inclusive. We also we want to avoid fragmentation of global capital markets.
Let me just add a few words on financial reporting.
I welcome the work that EFRAG has already done on long-term investment. I hope that the International Standards Accounting Board will quickly follow up on EFRAG’s advice.
I also invite both to consider the broader impact of climate change on accounting standards – including, for example, the financial impact of stranded assets.
The Commission will explore this theme in a public consultation for its next sustainable finance strategy. It will soon be open for your views and input.
I will now turn to the other transformation that I mentioned earlier: digital.
I recently read an interesting report by Deloitte, which carried out a survey on management reporting. It said that company finance teams spend 48% of their time creating and updating reports.
Of the 600 global finance leaders in the survey, three-quarters said they were using standardisation as a way to gain efficiency and get insights more quickly.
In Europe, a great deal of corporate information is fragmented. Data is often stored in many national and European databases, using different infrastructure and formats.
At the same time, we know that there is strong demand for easier access to a broad range of information – and preferably in machine-readable format.
There is some progress in standardising and transforming financial information into structured data.
As you know, listed companies in the European Union will use the European Single Electronic Format as of 2021 to prepare their annual financial reports.
One single file that will be human- as well as computer-readable, just like a normal webpage.
I think we should explore whether we could broaden this approach to non-financial reporting.
This would probably only work with a common standard – or set of standards - to develop a taxonomy for tagging non-financial information, which is the case now with the IFRS taxonomy used in the Single Electronic Format.
If we went in this direction, then I think the task of developing tagging requirements would logically fall to the European Securities Markets Authority.
While the Single Format is a huge step forward in company reporting, there is a long way to go to create a single market for digitised company data.
And, while standardisation is of course important, digital tools like automation, advanced analytics, and machine learning are powerful technologies that can take a company’s gains and business benefits much further.
They can save companies a great deal of time and money, removing the need for staff to be bogged down in spreadsheets or to assemble massive binders.
At the same time, improved and more efficient reporting has great potential for creating company value.
Artificial intelligence can be used to replace repetitive tasks, such as data entry, verifications, and referrals.
Companies can deploy software to automate routine tasks and shorten the time they spend on handling data.
Predictive analytics uses algorithms to carry out forward-looking analysis.
However, the potential offered by digital tools in this area remains largely unexploited.
So the Commission is continuing to explore how digitalisation and new technologies can make corporate information – including annual reports - more accessible.
For example, the Commission’s European Financial Transparency Gateway pilot project is testing whether blockchain technology can solve the issue of data fragmentation.
Tomorrow, the Commission is due to present a European data strategy. Making Europe fit for the digital age means making more data available – and useable.
Financial information and related non-financial reporting is an essential area where we can - and must - do more.
In that context, we will soon launch a public consultation to prepare a digital finance strategy.
I intend to present it later this year.
Ladies and gentlemen
I hope I have given you a flavour of the priorities of the new European Commission – particularly where they relate to the world of corporate reporting.
It will be a busy year – with challenges to face and opportunities to seize. As I said, we all have to evolve and adapt.
I know that, with your support, Europe’s people and businesses can make informed decisions to make the most of these major changes ahead.
Thank you for your attention.