French regulator demands broader scope for non-financial reporting

The French securities regulator, AMF, has asked the European Commission to make all companies, irrespective of size, disclose harmonised ESG data under the EU Non-Financial Reporting Directive.

The Autorité des marchés financiers (AMF), explaining its reasoning in a response to the commission’s call for feedback on the directive, said making just large, listed companies disclose their date made an “artificial” distinction for investors.  

The AMF also warned that it felt the scope of application of the directive, in its original form, was too limited for companies to effectively contribute to the European Union’s sustainable development goals.

It added that it would also be necessary to harmonise the scope of application at EU-level by removing all national options when adopting the directive, or risk watering down its effectiveness and risk it being less useful than intended for investors and companies alike.

The AMF said risk around ESG issues was not exclusive to large, listed companies, which meant they should not be the only ones disclosing them. But, also, there were benefits to demanding this level of disclosure more widely.

“Non-financial issues for unlisted companies are also crucial as the emissions of greenhouse gases do not depend on being listed or not,” the AMF said. “Such distinction is not present in all European regulations. For example, the obligation to publish a prospectus applies to all offers to the public of securities in order to protect investors - regardless of whether the company is listed or not.”

“Drawing up a non-financial statement allows companies - listed or not - to identify and manage their social, environmental, societal and governance risks as well as opportunities,” the AMF said. “This strategic exercise is particularly interesting for investors and banks but also customers, employees and other stakeholders of the company.”

The regulator highlighted how investors were increasingly turning to private markets for options: “Thus, the absence of non-financial reporting could deprive unlisted companies of funding and business opportunities, since an increasing number of portfolio managers (private equity) and banks finance companies based on ESG criteria, and many large companies require non-financial reporting from their subcontractors, whatever their size.”

The regulator also said the European Commission should add additional criteria to define companies that need to publish a non-financial statement, saying it was necessary to understand and capture the importance of a company, its performances and its situation compared to their competitors”.

It suggested combining annual turnover with total of balance sheet to reflect the value creation of a company. “Indeed, it is legitimate to think that companies reaching certain economic thresholds are likely to generate a significant impact on their ecosystem, either social, societal or environmental,” it said.

The regulator therefore suggested that all listed and unlisted companies with more than 250 employees, and €40m in net turnover or a total €20 million balance sheet, should complete a non-financial statement. However, it warned that “proportionality should be carefully taken into account” when extending the scope of the directive to companies having fewer than 500 employees.

“It appears necessary to precisely assess such impact, in particular with regard to the number of listed/unlisted companies concerned, their sectors of activity and their environmental and social impacts,” it said. Instead, a less burdensome disclosure should be required for companies with 250 to 500 employees, with an exception potentially being made for resource-intensive sectors that would have to disclose a more comprehensive non-financial statement.