Actualidad Contable 169 - Marzo 2021

EU is ahead on Sustainability Reporting Standards!

EFRAG recommendations are here!

María Mora Rodríguez
Miembro de la Ponencia AECA de Información Integrada. Member of the EFRAG European Lab Project Task Force. Member at the IFRS Consultative Working Group

A principios de septiembre de 2020, el EFRAG- European Financial Reporting Advisory Group pone en marcha el Project Task Force (grupo de trabajo especializado) para la elaboración de un informe acerca de la posible normalización de la información no financiera (PTF-NFRS). Su cometido se centra en dar respuesta al mandato recibido de la Comisión Europea en virtud del cual se debe proporcionar un análisis riguroso sobre el estado actual y problemática de la información no financiera y las posibilidades de desarrollar unos estándares de general utilización de cara al futuro.

Después de cinco meses de intenso trabajo, el pasado día 8 de marzo, se hace público el informe “Proposals for a relevant and dynamic EU sustainability reporting standard-setting”, con los resultados de la investigación, en el que participan 35 expertos de distintas entidades, públicas y privadas, y países de Europa. Entre estas entidades se ha encontrado AECA, a propuesta del ICAC, que, a través de su ponencia sobre Información Integrada, ha participado activamente en la elaboración de contenidos, reuniones de trabajo y en los debates celebrados.

En este artículo, María Mora, miembro de la citada ponencia de AECA, que ha formado parte del PTF-NFRS, destaca algunos contenidos relevantes del informe en el que se llama la atención sobre la necesidad de una mayor concreción en la estandarización   de la información no financiera (o  sostenibilidad) con un mayor nivel de garantía para tomar decisiones, de la nueva responsabilidad del EFRAG en el desarrollo de dichos estándares en el futuro y del reconocimiento de la tecnología XBRL, alineada con el nuevo marco ESEF para la información financiera y con estándares ya existentes de normalización no financiera como los propuestos por CDP, SASB y AECA.    

At a global level, Europe is ahead on Sustainability regulation, under the umbrella of the Commission's Action plan of Financing Sustainable Growth[1], the urgent timetable of the European Green Deal[2] and the EU’s climate strategy[3] whose medium-term ambition is to reduce the greenhouse gas emissions (GHG) at least 55% below 1990 levels by 2030 and reaching climate-neutral by 2050.

To reach sustainable growth in Europe, the Commission considers important the application of policies that involve a broad set of stakeholders. Concretely, the implantation of the Non-Financial Reporting Directive (NFRD) and the Sustainability Related Financial Disclosure Regulation (SFDR) are marking a turning point in the EU.

The NFRD came into effect in 2017, requiring large Public-Interest companies with more than 500 employees to publicly disclose ESG matters. Under local transpositions, some EU countries decided to extend the application of this rule to companies with over 250 employees, like Spain, Sweden, Luxembourg and Greece.

On the other hand, the SFDR has recently come into effect in March 2021. The need for this Directive represents a key strategy piece to accelerate the achievement of sustainable goals, as it tackles directly the financial systems, putting them as central to redirect capital flows towards a real sustainability transformation. Within the SFDR scenario, Financial institutions (assets managers, banks, and insurance companies) are considered priority actors to take action and achieve the EU’s goals.  The SFDR requires financial market participants (FMPs) and financial advisors to evaluate and disclose sustainability-related data and policies at entity, service, and product levels. This is to prevent greenwashing and ensure a systematic, transparent, and comparable approach to sustainability within the financial market.

But, where are we now? The Commission recognises that to overcome its political ambition and urgent timetables, it is necessary to ensure the consistency of reporting rules at the heart of the sustainable finance agenda through the development of EU sustainability reporting standards. For that task, the Commission asked the European Financial Reporting Advisory Group (EFRAG) to undertake preparatory work for the possible elaboration of EU non-financial reporting standards.

We are proud to say that, AECA has been working hand in hand with the EFRAG on this task, along with other 34 members and the representatives of 9 EU public authorities including the European Central Bank (ECB), the European Banking Authority (EBA), the European Securities and Markets Authorities (ESMA), The European Insurance and Occupational Pensions Authority (EIOPA).

“It is necessary to ensure the consistency of reporting rules at the heart of the sustainable finance agenda through the development of EU sustainability reporting standards”

As a result of this EFRAG’s taskforce, two main reports are published on the development of EU sustainability reporting standards.

  • The first report with six complimentary appendixes [4] contains 54 Proposals for the creation of relevant and dynamic EU sustainability reporting standard-setting. Covering foundations, conceptual guidelines, target standards architecture, and an ambitious roadmap that aims to produce the first set of draft standards by mid-2022.

  • The second report [5]contains the possible governance and funding structure if EFRAG takes the responsibility of standard setter developing non-financial (sustainability) reporting standards.

A new governance structure with a new non-financial (Sustainability) pillar and more responsibilities for EFRAG

In this report, it is proposed a new governance structure for EFRAG, as well as, a complementary funding strategy to incorporate a new non-financial/Sustainability reporting pillar alongside the existing financial reporting pillar to ensure that future EU sustainability reporting standards are developed using an inclusive and rigorous process. (Figure 1)

The direction is that EFRAG takes a new responsibility of developing the non-financial (sustainability) standards within the new non-financial pillar, which represents a step ahead of its current responsibility at the financial pillar of influencing existing accounting standards, by providing input to the IASB and endorsing advice to the European Commission. The idea is that the existing responsibilities linked to financial reporting standards remains unchanged.

New proposals for a consistent creation of EU sustainability reporting standard-setting

One of the most surprising points of EFRAG’s proposals is the importance of the term “Sustainability reporting”  over “non-financial reporting”,  that we have heard during the last years at the Commission. Without the spirit to isolate the ESG from the financial dimension, now driven by the financial materiality and double materiality reporting concepts.

EFRAG establishes that the purpose of sustainability reporting should be to provide relevant, faithful, comparable and reliable information:

  • on (i) material sustainability impacts of the reporting entity on affected stakeholders (including the environment) and (ii) material sustainability risks and opportunities for its value creation,
  • Enabling users of information (i) to understand the reporting entity’s sustainability objectives, position and performance and (ii) to inform their decisions relating to their engagement with the entity.’

The proposal establishes that there should be a “balanced representation” of stakeholders, involving both the public and private sector and including representatives of civil society, including academics. Regarding the target audience, EFRAG does not only put the view on the investor’s community, its approach embraces an inclusive range of stakeholders to maximize value creation by businesses in a balanced manner between stakeholders. Financial institutions and SMEs are important groups in the priority list, as both preparers, with specific sustainable finance requirements, and users of sustainability reporting. Without excluding the importance of other groups.

A more sector-specific reporting approach is considered important by the EFRAG, as a useful complement to cross-sector information to foster relevance and comparison with peers. Besides, acknowledging the importance of intangibles in sustainability reporting as a key lever for sustainable development and value creation of businesses.

“EFRAG takes a new responsibility of developing the non-financial (sustainability) standards within the new non-financial pillar, which represents a step ahead of its current responsibility”

EFRAG recognizes the importance of coordination and alignment with existing and emerging global standards initiatives. The proposal intends to build the EU sustainability reporting standards and contribute upon them, achieving in that way a global convergence, in a spirit of partnership and fruitful co-construction.

EFRAG remarks on the importance of double materiality (already referenced in the current NFRD) during the preparation of the sustainability information. According to the EFRAG, materiality should be understood as a way to produce useful information that takes into consideration the needs and expectations of the stakeholders of an organisation and of the organisation itself. Three main perspectives can be distinguished on this crucial topic:

  - Financial materiality: emphasizes risks to the reporting entity’s financial performance (outside-in, including the so-called “rebound” effect);

  - Environmental and social (people) materiality concentrates on the impacts on people, communities and the environment connected to a reporting entity’s activities and business relationships (inside-out);

  - Double materiality recommends covering both in their own right while recognising they overlap in part.

In terms of concrete reporting aspects, EFRAG proposes an architecture where the rule of three applies (figure 2). It suggests:

  • Three-layered scope structure (with sector-agnostic standards at the core, then sector- and entity-specific standards) to promote proportionality and comparability on those levels.
  • Three reporting areas (strategy, implementation and performance). A strategy that also includes Governance and materiality assessment of Risks, Opportunities, and Impacts.   An implementation which includes Policies, Targets and Action plans and Performance measurement including monitoring the transition trajectories through past performance and forward-looking perspectives.
  • Three reporting topics, corresponding to the traditional Environmental, Social and Governance (ESG) classification, with comprehensive sub-topics. Covering all aspects of the European sustainability goals and agenda and based on the ESG classification. The environment with subtopics aligned on the EU taxonomy[6]. Social with impacts on people organized around the categories of stakeholders (workforce, value chain workers, affected communities, consumers/end users) and Governance covering the full range of relevant matters relating to the reporting entity itself and its sustainable development.

“Explicit recognition to XBRL technology to be considered on board in alignment with ESEF for financial information and existing sustainability reporting standards work from CDP, SASB and AECA”

Important to note that EFRAG places the sustainability information as part of the management report in a new section called “Sustainability statement” and recognizes the digitalization of reporting as an important step to move forward in the future strategy. The report made specific recognition to XBRL (Extensible Business Reporting Language) technology to be considered on board in alignment with the European Single Electronic Format (ESEF) for financial information and existing sustainability reporting standards work from CDP, SASB and AECA.

  • 422. The Transparency Directive146 was amended in 2013 in order to make reporting digital with tagging techniques for issuers and to facilitate accessibility, analysis and comparability of the information in a machine-readable data format. The European Securities Markets Authority (ESMA) was assigned the responsibility to develop the technical standards for European Single Electronic Format (ESEF) and the eXtensible Business Reporting Language (XBRL) tags. The inline XBRL (iXBRL) technology was chosen as the basis of providing both human readable and machine-readable data to the users. The amendment included a new requirement for issuers to prepare their annual financial reports in a single electronic reporting format (ESEF) of the annual reports. The ESEF is based on the XBRL International open-source data standard for business reporting, widely adopted globally for statutory and prudential reporting of financial disclosures.
  • 423. For sustainability information to be as easily accessible and processed as financial information, similar classification methods and formats should be considered. This calls for enabling a digital XBRL (eXtensible Business Reporting Language) taxonomy for EU sustainability reporting standards along the standard-setting process. An XBRL taxonomy aligned from the outset with the new sustainability reporting standards will allow reporting entities to present information  that is required by the standards and formatted in accordance with the agreed-upon digital reporting taxonomy. The digitisation strategy should include developing and updating established digital taxonomies in parallel with standard setting itself and covering all sustainability topics. The PTF recommends that the Sustainability Reporting taxonomy be integrated early in the standard setting process. This would also ensure architectural compatibility with other reporting taxonomies that are applied already by all EU-listed companies. The PTF believes that the digital reporting taxonomy should reflect the target architecture.
  • 114. (4.6 appendix[7]) SASB[8], CDP [9]and AECA[10] support electronic formats not only to promote better data quality and analysis of the non-financial information, but also to overcome the misalignment between the reporting of material non-financial information and financial reporting, in effect amplifying the concept of double materiality.

Given the level of urgency and EU ambition to move rapidly and ensure consistency of reporting at the heart of the EU’s sustainable finance agenda, the EFRAG recommends that the implementation of the standard-setting roadmap should be realistic and implemented in phases as presented in the roadmap below (Figure 3), with an enhancement of content approach, to eventually achieve the target architecture and a robust sustainability standards platform over time.

So, What’s next?

EFRAG has produced a rich and robust report with 54 proposals that represent a solid basis for consideration by the EU and other international stakeholders in shaping the sustainability standard setting.

In the short term, the revised NFRD and coming SFDR should benefit from these EFRAG recommendations.

In the medium and long-term, a final decision regarding EFRAG’s role, responsibilities and funding allocation needs to be taken by the Commission on the creation of the new non-financial (sustainability) pillar within the governance structure.

From AECA, just to say that it has been a pleasure and honour to participate and contribute to this important European work that will mark the next steps of the sustainability reporting and standardisation direction in Europe. If you have any question or comment regarding this work, please feel free to contact us  (


[1] Commission action plan on financing sustainable growth:

[2] The European Green Deal:

[3] EU Climate plan:,target%20of%20at%20least%2040%25

[4] EFRAG sustainability reporting standard-setting proposal:

[5] EFRAG governance structure evolution:

[6] EU Taxonomy:

[7] Appendix 4.6 Current non-financial reporting formats and practices

[8] SASB digital reporting practices:  

[9] CDP Technology and climate reporting: can XBRL help TCFD?:

[10] AECA Integrated Reporting Model: Financial, Environmental, Social and Governance: