EFAA Provides Input on the Importance of Non-Financial Reporting

Sustainable Finance - Obligation for Certain Companies to Publish Non-Financial Information

Brussels, 27 August 2020 - EFAA supports the development of a NFR standard for SMEs, preferably by EFRAG with robust participation of SME organisations. This NFR for SMEs standard should be voluntary and cover sustainability / environmental matters to serve as fulfilment of the Taxonomy Regulation. 

While we recognize the need for sustainable finance, we have concerns about the impact on SMEs, especially during these challenging times. Accordingly, we urge the Commission to apply the following principles for SMEs:

  1. Ensure the proportionality, simplification, and flexibility of reporting requirements. 
  2. Appoint SME organisations as advisory and rating agents.
  3. Provide financial support and advice to help SMEs make the sustainability transition.
  4. Create incentives for SMEs that voluntarily apply NFRD e.g., facilitate access to finance, tax breaks, public rankings, preferred treatment in public procurement tenders etc.
  5. Avoid the blanket ‘brown-listing’ of certain activities. 

We appreciate the Inception Impact Assessment recognizing the direct and indirect impacts on SMEs. We believe the indirect impacts caused by: (i) non-financial undertakings under the scope of the NFRD requesting taxonomy-specific information from their SME suppliers; and/or (ii) financial undertakings under the scope of the NFRD requesting taxonomy-specific information from SME clients and investees may be significant. Moreover, the NFRD´s scope should not be extended to include SMEs without simplification since we foresee the direct impact, in terms of the additional costs SMEs will incur in collecting, organising, and disclosing taxonomy-relevant information, to be considerable. 

In the Summary Report of the Public Consultation on the Review of the Non-Financial Reporting Directive we note strong support for the NFRD to define environmental disclosures according to the six environmental objectives set out in the Taxonomy Regulation. While we support this view for those undertakings that presently fall under the scope of the NFRD we believe they will likely prove too burdensome for SMEs were the NFRD to be extended to include them without modification or a specific standard for SMEs.

We believe SMEs will struggle to report their taxonomy compliant activities and produce the metrics and thresholds required by the taxonomy. Simpler reporting is essential for SMEs. 

We recognize that the Commission might, as a first step, introduce mandatory reporting obligations for SMEs from sectors with a high transition risk. If they do then this may require a gradual approach and a development of training schemes that could help to build a common understanding of the taxonomy and disclosure requirements.

EFAA stands ready to provide further input on the Commission’s plans and will continue to provide feedback as these plans develop.

EFAA's feedback is also available here.