OPINION STATEMENT
To The European Commission 22.6.2021
Directors’ Institute Finland (DIF) is an independent non-profit association which contributes to the development of the professional capabilities of its members, and thus enhances its position as a leader in the debate on corporate governance (Transparency Register: 79238116273-93). DIF has 750 members with significant experience on board work. DIF is a member of The European Confederation of Directors Associations (ecoDa).
With reference to the consultation on the European Commission’s proposal on new rules for corporate sustainability reporting (the “CSRD proposal”), the Directors’ Institute Finland would like to submit the following statement.
The Directors’ Institute Finland wishes to initially state that it shares the presented focus of the European Commission to encourage companies to more take into account the impact caused by their company on the surrounding ecosystem and to adopt a sustainable strategy.
The Directors’ Institute Finland is, however, concerned about certain aspects of the proposal. One of the Institutes’ main concerns relates to the timing of the proposed regulation and the lack of clarity in the proposal of the final content of the directive. According to the proposal, the detailed content of the reporting and the reporting standards would be developed by the European Financial Reporting Advisory Group (EFRAG) according to a very tight time schedule. Also, the implementation of the proposal is to be done in limited time. It is of outmost importance that reporting standards are thoroughly prepared, clear and consistent as well as in line with international standards. There needs to be clarity with regards to all reporting requirement and a possibility to have clear reporting grounds and measures based on which to report, which is all thoroughly prepared. The time required for this needs to be taken into account.
Another main concern is the requirements of the CSRD proposal that the sustainability reporting shall be included in the management report and that it may not be a separate report. The Institute finds that there is a clear risk that such requirement may make the report oversized and difficult to read and digest for investors and stakeholders. Reporting format should not be regulated in detail on EU directive level and should be developed by companies in order to best correspond to the needs of investors and stakeholders.
There would also be different requirements on assurance of the sustainability report and the financial report, as well as possible additional national regulation concerning the audit of the management report. Combining all information into one report with different audit and/or assurance requirements for different types of sections would be likely to reduce the readability of the report. The Commission should place more emphasis on the importance of narrative in order to understand the specificities linked to a company and a given sector beyond a purely quantitative approach. The narrative also allows an essential prospecting dimension to the reporting exercise.
The CSRD sets out that the Board Audit Committee shall deal with the sustainability reporting. The European Commission should refrain from being too prescriptive on which committee should be responsible to review the sustainability report. This could be done by the Audit Committee or another committee like the sustainability Committee when it exists.
The CSRD proposal would give Member States the option to require that where a national subsidiary is included in a parent company consolidated report, such a report shall be separately published also by the said subsidiary and if so required by the Member State in question, translated into local language. These kinds of additional requirements of administrative work for companies are not in proportion to possible gain.
Finally, our view is that it is essential that the framework will be principle based and focused on risk and materiality for the individual company and call for a clear focus on ensuring that the proposal is developed in this direction in the further process stages.
We thank you for your consideration.
Sincerely,
Directors’ Institute Finland – Hallitusammattilaiset ry
Kim Ignatius
Chair of the Board of Directors
Leena Linnainmaa
Secretary General