On 18 December 2019, the European Securities and Markets Regulator (ESMA) published a report on undue short-term pressure on corporations in securities markets. On environmental, social and governance (ESG) disclosures, ESMA recommends that the European Commission take action on setting a minimum level of comparability, relevance and reliability for ESG disclosures, amending the Non-Financial Reporting Directive (NFRD) to establish principles for high quality non-financial information, assess the feasibility of achieving international convergence and consolidation of disclosure frameworks, including a non-financial statement in the issuer's financial reports, and establishing consistency between the NFRD and Transparency Directive. The Transparency Directive was issued in 2004, later revised in 2013, and aims to ensure the transparency of information for investors through effective financial reporting.
With regards to institutional investor engagement, ESMA recommends:
- reviewing ESMA's November 2013 Public Statement on information on shareholder cooperation and acting in concert under the takeover bids directive; and
- that the European Commission considers whether requiring a vote on whether or not to include the non-financial statement in each company's annual financial report could serve as an effective tool for investors to express the investors views on how investee companies address sustainability risks.
ESMA has considered the views of financial markets participants, and its report summarizes their input on investment strategy, the impact of the International Financial Reporting Standards (IFRS) definition for fair value measurement on financial reporting, the impact of undue short-termism on remuneration policy, ESMA's analysis of the remuneration of corporate directors and how the remuneration packages may have affected director's incentives to pursue short or long term performance.
View ESMA's announcement here.
View ESMA's full report here.
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