Earlier in June 2020, the Malta Institute of Accountants (MIA) has contributed to the European Commission’s Consultation document on the review of the Non-Financial Reporting Directive (NFRD). This was tackled through a Working Group set up composed of a few members of the MIA Financial Reporting Committee as well as MIA members, nominated by the said Committee.
The aim of this consultation is to collect the views of stakeholders regarding possible revisions to the provisions of the NFRD. The NFRD requires large companies, specifically Public Interest Entities with more than 500 employees, to include a non-financial statement as part of their annual public reporting obligations. There are 4 main sustainability issues that are core to the NFRD:

1.      Environment

2.      Social and employee Issues

3.      Human Rights

4.      Bribery and Corruption

Companies are required to disclose information surrounding these issues, including information about their business model, policies, outcomes, risk and risk management and key performance indicators. In compliance with the NFRD companies must disclose the double materiality perspective, this means that they must not only disclose how sustainability issues could affect the company but must also disclose how the company affects the society and environment in which it is operating.

It is clear, that in today’s current environment the non-financial information needs of users, especially investors have increased substantially. There is the demand for more and better information that will help users better understand the financial risks resulting from the sustainability crises we are currently facing and the demand to have products that address the environmental and social problems.

The main problem noted is that there is currently inadequate publicly available information on how non-financial issues and sustainability issues impact companies, and how companies in turn impact the society and environment. There is also a degree of uncertainty and complexity as to what type of non-financial information to report as well as how and where to report it. One may also note that companies are also incurring unnecessary and avoidable costs with regards to the reporting of non-financial information.

Through this consultation the European Commission is working towards its commitment to review the NFRD in 2020 as part of the European Green Deal’s strategy - to strengthen the foundations of sustainable investment. The aim of NFRD is to strengthen sustainable finance by improving transparency. Companies must shift their focus from short-term financial performance to long-term development and sustainability.

The outbreak of COVID-19 has shown how economic, social, and environmental aspects are interlinked; therefore, companies should make the shift towards prioritising shareholder’s long-term interests. This step towards revising the NFRD and all the input that contributed to such a consultation is an important element that can help us achieve this.