Good evening ladies and gentlemen.
The big topic on yesterday’s agenda at COP26 was finance – how to mobilise public and private finance flows at scale for climate mitigation and adaptation.
I hope it sparked important conversations in the financial world and strengthened our resolve to act together and to act fast to address the climate crisis.
Given the central role of finance to the green transition, we need to keep the conversation going.
We need to make some big changes over the coming years, and we need to make sure everyone is on board.
So I’m pleased to kick off this discussion on sustainability reporting standards in the European Union and the future of sustainability reporting.
As you know, the EU is firmly committed to becoming a sustainable economy. The way we get there is set out in the European Green Deal.
It aims to make the European Union climate-neutral by 2050, by supporting green jobs, green growth and green investment.
For finance to play its full part in the sustainable transition, we need complete, comparable and reliable sustainability information from companies.
Now, here is where the Corporate Sustainability Reporting Directive - or CSRD for short - comes in.
The CSRD will strengthen sustainability reporting rules for companies, meeting the information needs of market participants and other stakeholders.
With this proposal, we’ve taken a comprehensive approach to the disclosure of sustainability information.
It will require more companies to:
- report sustainability information
- introduce an audit requirement
- promote the digitalisation of sustainability information
- and make EU reporting standards mandatory.
I’d like to take a moment to focus on EU sustainability reporting standards, the most important element of the CSRD proposal.
The development of EU standards should provide a cost-effective solution for reporting companies.
The current situation of multiple standards and expectations is costly and confusing and inefficient.
The draft standards which companies will have to report on will be developed by the European Financial Reporting Advisory Group, EFRAG.
The Commission will adopt the standards as supplementary, secondary legislation - so-called “delegated acts” - after consulting with the other EU institutions.
These EU standards will be consistent with our political ambition and with our existing framework for sustainable finance. From the beginning, they will cover all ESG topics, including climate.
Our standards will align closely with other key parts of the EU sustainable finance strategy. The standards will knit together with the EU Taxonomy, our classification system for identifying sustainable economic activities.
EU corporate reporting standards must also take into account the disclosure requirements already in place under the Sustainable Finance Disclosure Regulation, which requires the financial sector to report on its contribution to the sustainability agenda.
Taken together with the CSRD, these will enable the consistent flow of sustainability information throughout the financial value chain from companies to end-investors.
By design, our standards will cover climate and other sustainability risks for companies, as well as the impact companies have on people and the environment.
In other words, they will integrate both materiality perspectives - what the IFRS Foundation has called “enterprise value creation” on the one hand. And an account of a company’s impacts on people and the environment on the other.
And let’s be clear – this is information that financial markets want and need.
And by financial markets, I mean global financial markets.
It’s clear that the European Union cannot tackle the climate crisis by acting alone. Indeed that is why the EU is fully engaged and ambitious for COP26.
I note that our UK hosts for COP26 are taking a similar approach to sustainability reporting, acknowledging the need both for reporting on enterprise value creation and for reporting on impacts – the double materiality concept.
The EU wants to make sure our standards are closely aligned with global standards. And this is something we are fully committed to on sustainability reporting.
We welcome the IFRS Foundation initiative to develop a common global baseline on sustainability reporting.
But we believe that global standards should be a common floor, not a ceiling that limits those that want to go further and faster.
Global processes should be flexible enough to accommodate the need for different countries and jurisdictions to go further according to their own rules and priorities.
So two-way cooperation between global and regional standard-setters is critical. We need to ensure coherence between frameworks.
EFRAG has already established close technical cooperation with the Global Reporting Initiative and with the IFRS Foundation, amongst others, and this is important.
There is already a lot of common ground. For example, we have taken care to integrate all the key concepts of the Task Force on Climate-Related Financial Disclosures recommendations into our legislative proposal.
Today’s event is a great opportunity to broaden and deepen the conversation about the interaction between global and local initiatives.
EU standards will build on and contribute to global standardisation initiatives. We should build on what exists, and seek as much alignment as possible, while also meeting Europe’s ambitious goals.
Thank you for your attention and I wish you a fruitful discussion.