On 18 December 2019, the European Securities and Markets Authority (ESMA) published a report on undue short-term pressure on corporations. The report is in response to the call for advice from the European Commission as part of its Action Plan, Financing Sustainable Growth, and will inform policy actions that could be taken to ensure that long-term perspectives are adequately considered in the financial sector.
ESMA recommends improvements in issuers’ environmental, social and governance (ESG) disclosures which should respect a minimum level of comparability, relevance and reliability. ESMA recommends that the European Commission (Commission) considers appropriate amendments to the Non-Financial Reporting Directive (NFRD) to establish principles for high quality non-financial information along with a limited set of specific disclosure requirements.
ESMA also recommends that the Commission assesses the feasibility of achieving international convergence and consolidation of relevant disclosure frameworks with the objective of promoting, in the medium term, the adoption of a single set of international standards for ESG disclosures.
Furthermore, ESMA proposes including the non-financial statement in issuers’ annual financial reports and mandating assurance on its content and consistency with other information in the annual financial report. It also recommends establishing consistency between the NFRD and the Transparency Directive, a key element to improve reliability of ESG disclosures.
To further facilitate engagement, ESMA recommends that the Commission mandates a review of the White List, namely ESMA’s public statement on shareholder cooperation and acting in concert under the Takeover Bids Directive.
ESMA suggests that the Commission considers the effectiveness of a shareholder vote on the non-financial statement to allow investors to express their views on how investee companies address sustainability risks.
In addition, ESMA suggests monitoring the application of the revised Shareholders Rights Directive in order to assess whether it effectively encourages long-term engagement.