Key Governance Developments - September 2022

Companies set to face new reporting responsibilities under EU sustainability disclosure rules

As many as 50,000 companies throughout the EU will be required to provide more detailed information on the sustainability of their activities within the next two years and obtain certification through an independent audit under the Corporate Sustainability Reporting Directive. From the beginning of 2024 the legislation will require companies to provide transparency on the sustainability of their business for the previous financial year. At present some 11,700 large companies and groups across the EU are subject to the requirements of the 2014 Non-Financial Reporting Directive, but the new law will extend the obligation to all large European companies - those that meet at least two criteria out of 250 employees, €20m balance sheet and €40m in turnover. It will also apply to all companies listed on regulated European markets, as well as non-European groups generating net turnover of at least €150m a year in the EU and that have at least one subsidiary or branch there.

Key Governance Developments

EU institutions reach agreement on amendments to Corporate Sustainability Reporting Directive

The European Commission, European Parliament and member states have reached agreement on amendments to the EU's planned Corporate Sustainability Reporting Directive that would require companies to provide more detailed information and to obtain certification through an independent audit. The legislation, which is due to go into effect at the beginning of 2024, requiring as many as 50,000 EU companies to provide transparency on the sustainability of their activities for the previous financial year, will place sustainability reporting on the same level as provision of financial information, according to European commissioner Mairead McGuinness.

Best source: L'Echo (subscription required, in French)

BaFin scrutinising sustainable funds closely for misleading ESG claims: Thorsten Pötzsch

BaFin will be scrutinising sustainable investment funds more closely to examine whether they are making misleading claims about their environmental, social impact or governance characteristics, according to Thorsten Pötzsch, the German regulator's head of securities supervision. Investors have become increasingly sceptical about ESG claims and not every sustainable fund offers good investment performance, he says. BaFin last year announced guidelines on marketing ESG funds, but has postponed further action because of the Ukraine war and unsettled market conditions.

Best source: Handelsblatt (subscription required, in German)

Most European asset managers, financial advisers and banks ready to block non-ESG products: PwC

Almost two-thirds of European asset managers and distributors are willing to halt the launch or distribution of products that do not comply with environmental, social impact and governance standards by the end of 2024, according to a survey by PwC Luxembourg. It also finds that almost 70% of independent financial advisers, private and retail banks plan to end distribution of non-ESG products completely, with over half intending to do so within two years. PwC says its research indicates that Europe-domiciled ESG assets will be worth between €7.4trn and €9.0trn by 2025.

Best source: Reuters (registration required)

EBA issues guidelines for compliance officers and management to harmonise EU AML procedures

The European Banking Authority has published guidelines outlining the responsibilities of compliance officers in assuring anti-money laundering controls and the role of senior management in overseeing compliance. The EBA's aim is to harmonise institutions' internal governance frameworks throughout the EU in line with the union's fourth Anti-Money Laundering Directive. Although the legislation itself is specific, variations in interpretation from country to country have led to uneven implementation, the regulator says.

Best source: European Banking Authority