Non-financial reporting, a significant challenge for our customers and the COFIME Group
Many texts promote the protection of the planet and address climate change, and some of them are relatively old. Indeed, the notion of sustainable development, with its three pillars (economy/ecology/social), was officially recognised as early as 1992 at the “Earth Summit” in Rio.
One of the first difficulties in this development phase involved benefiting from a clear distinction between:
- the IPCC reports, which provide an overview of the latest scientific knowledge on climate change, its causes, impacts, and possible mitigation or adaptation measures
- the Paris Agreement: which set the goal of limiting the rise in the average global temperature to below 2°C (even 1.5°C) in relation to pre-industrial levels by 2100
- the “Green Deal”, which should help the European Union (EU) achieve carbon neutrality by 2050 through various initiatives, including the “Fit for 55” measures and the sustainable finance action plan
As can be seen from these three examples, many different texts set different objectives in terms of their nature and timeframes. Under these conditions, defining the format for “sustainability reporting” is problematic.
To that end, many concepts needed to be clarified:
- first of all, “sustainable development”: development that is economically efficient, socially equitable, and ecologically sustainable
- CSR (Corporate Social Responsibility) was defined by the European Commission to encourage companies to ensure a positive impact on society while remaining economically viable.
- ESG (Environmental, Social, Governance) criteria established in the frame of the UN Global Compact, which introduce or establish the opportunity to assess the taking into account of sustainable development, particularly for investors wishing to integrate sustainability considerations into their investment decisions.
In France, these efforts have led to the creation of a dense regulatory framework:
- Since 2001, the NRE Law (New Economic Regulations) has required French listed companies to disclose their social, societal, and environmental impacts in the management report, with a comprehensive review and consistency check by the statutory auditor.
- In 2010, the “Grenelle II” law extended the obligation to publish CSR information to entities with more than 500 employees and a turnover, or total “balance sheet” exceeding €100 million. The statutory auditor must verify the presence of this information, produce a statement of presence, give their opinion on the accuracy of the information, and justify any exclusions.
- In 2014, the European NFRD (Non-Financial Reporting Directive) introduced transparency and publishing requirements for non-financial information for companies listed on a regulated European market. However, no obligation to verify these reports was provided for in the NFRD, leaving it to the discretion of member states.
- In 2017, the NFRD was transposed into French law: the DPEF (“Déclaration de Performance Extra-Financière” – Statement on Extra-Financial Performance): at the same time, the scope was extended beyond the EU directive to cover Public Interest Entities (PIEs) and large companies (except simplified joint-stock companies). The DPEF also introduced specific verifications by the statutory auditor regarding the conformity and reliability of the information provided.
- In 2019, the “Pacte” law required all French companies “without exception” to take into account environmental and social issues when managing their activities.
- In 2022, the CSRD (Corporate Sustainability Reporting Directive) replaced the NFRD and its French transposition, the DPEF, with an entry into force expected by 2024: it extended the scope by lowering thresholds to 250 employees and/or a turnover of €40 million and/or a total “balance sheet” of €20 million and, for the first time, it defined ESRS (European Sustainability Reporting Standards) for “Sustainability Reports”, including the taxonomy. This report is verified by the statutory auditor or by an independent third party (OTI)
- Many other initiatives, texts, and frameworks from various organisations (GRI, SASB, IIRC, CDSB, TCFD, TNFD, IFRS Foundation through IASB, ISSB, etc.) further enrich these reflections and good practices
Currently, companies falling within the scope of the CSRD are subject to the CSRD, detailed in delegated regulations, which contain the so-called ESRS standards in Annex I and the acronyms and glossary in Annex II.
These standards cover “environmental”, “social”, and “governance” topics. There are 12 standards:
- 2 “general” standards, ESRS 1 for general requirements and ESRS 2 relating to the information to be published
- 5 standards relating to the environment (E)
- 4 standards relating to social issues (S)
- 1 standard relating to Governance.
These standards introduce two new concepts:
- Double materiality, which involves measuring the impact of a company’s activities on the environment or climate and assessing the effects of the actions taken on the company’s finances
- Value chain, which involves assessing and taking account of impacts from upstream (suppliers, etc.) to downstream (customers) and introduces various scopes: that of the company itself (its buildings and infrastructure), the company’s business (producing goods or services), and finally, those of its suppliers and customers.
A second set of standards will be adopted soon by the European Commission and is expected in 2025/2026.
It is also necessary to underline the importance of the EU’s “taxonomy” regulation, which develops a framework and criteria for defining economically sustainable activities and environmental objectives and introduces publication obligations relating to the share of sustainable economic activities at the level of companies and financial products.
The aim of this Taxonomy is to:
- Create security for investors
- Protect private investors from greenwashing
- Encourage companies to become respectful of the climate and the environment
- Mitigate market fragmentation
- Direct capital towards sustainable investments
To achieve this, it has defined 6 objectives:
- Mitigation of climate change
- Adaptation to climate change
- The sustainable use and protection of aquatic and marine resources
- The transition to a circular economy
- The prevention and control of pollution
- The protection and restoration of biodiversity and ecosystems
In conclusion, we can confirm that the frameworks for establishing and assessing the relevance and quality of sustainability reports are now in place; they constitute a comprehensive and complex collection of documents that will continue to be refined or consolidated, mainly through good practices. The fields covered are now incredibly vast, requiring specialist, often technical, and highly varied expertise.
COFIME Group has built an ambitious strategy to ensure it has the qualified resources to assist you in preparing or auditing your sustainability reports. We are at your disposal to discuss how we can bring our expertise and added value to these issues that are essential for all.
