Strategies For Sustainable Finance

Current Legal Developments: An Overview

The German Government has assigned the Sustainable Finance Committee with a counselling role in the elaboration of a national financial strategy, and it has commissioned it with the development of recommendations for action. In its interim report, the advisory council has published the following recommendations (extract):

  • Extension to all corporations with more than 500 employees (including those who are not capital market-oriented according to § 264d HGB).
  • Gradual expansion of the disclosure of sustainability information from non-capital market-oriented companies and small and medium-sized enterprises (SMEs).
  • Inclusion of companies in those industries that have particularly material risks and impacts on the environment, human rights and other sustainability aspects (so-called high-impact sectors).
  • Develop a clearer and more meaningful explanation (and expectations) of the content requirements of non-financial reporting (including concepts / due diligence, results and risks), bslh. the topics of supply chains, human rights, climate protection, compliance.
  • Develop a plan to ascertain materiality (concretizations developed to determine the materiality).
  • Specification of the risk term used against the background of different stakeholder expectations (including shareholders and civil society).
  • Stronger standardization of the disclosure of sustainability data based on the time and place of publication in order to compare sustainability data. In the best case, the goal is the integrated publication of financial and sustainability information
  • The question of possible approaches to consolidation and simplification of reporting should be considered in an international context, taking into account relevant institutions such as u. a. the International Accounting Standards Board (IASB) and the International Integrated Reporting Council (IIRC)

Content expansion and specification of non-financial reporting to include defined sustainability indicators:

  • Regardless of whether the materiality or the control relevance has been checked (cf. § 289c (3) sentence 5 HGB), the disclosure of a core set of (possibly sector-related) performance indicators is proposed.
  • Reassessment of the forecast horizon to medium-term (1 to 5 years) and long-term (10 to 20 years) horizons. The disclosure of forward-looking information should focus on core information. Industry dialogues in the oil and gas, chemical and energy industries.

Improved access to sustainability information by digitizing and setting up a raw database. Measures suggested:

  1. Development of a new and ideally maintained European raw sustainability database. Objective: Centralized, generally accessible database of sustainability information that is published as part of corporate sustainability reporting
  2. Building on existing platforms such as the electronic Federal Gazette, transparency register, CDP, DNK or others must be checked
  3. Gradual introduction of a standardized, digitized reporting format (e.g. XBRL)

The public opinion on the interim report will be collected until April 3, to be discussed at the next advisory board meeting on May 20, 2020 with the responsible state secretaries.

Pension Funds

The European pension supervisory authority clarifies that pension funds are not obliged to consider so-called ESG criteria (environmental, social and governance or environmental, social and corporate governance) when investing in shares or pensions.

The institutions of the BAV have no obligation, but only the option to consider ESG criteria when investing. Solely the obligation to provide information to the members of the pension fund exists as to whether and to what extent environmental, climate, social and corporate management aspects are taken into account in the investment policy.

According to experts, however, the risks that arise from non-compliance with ESG criteria must be noted. The EU launches an initiative to update non-financial reporting (NFRD). The IASB announced that it would submit a renewed sustainable strategy later this year, which will include a revision of the Non-Financial Reporting Directive (NFRD).

Inception Impact Assessment

As a first step, an “Inception Impact Assessment” was published. The paper shows the following current problems:

  • The reported non-financial information is not sufficiently comparable or reliable.
  • The reported non-financial information does not meet user needs.
  • This creates unnecessary and avoidable costs for the company, combined with high complexity.

Solutions

The IASB identifies three options that could be used to solve these problems:

  • Continuation of the current non-binding guidance approach to help companies report under the NFRD
  • Examine the use of standards (their application remains voluntary for companies if they so choose)
  • Revision and strengthening of the provisions of the NFRD

Stakeholders have the opportunity to comment on the impact assessment in Q1 / 20.

Envoria is following the legal discussions. New legal requirements are constantly implemented in our software.

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