Non-financial reporting under the EU taxonomy – Theme inspection by the Danish FSA
Published 6 November 2024
Category: Impact and ESG
The Danish FSA has completed a theme inspection regarding financial market participants and companies reporting under the EU taxonomy. The inspection focuses on the reporting of the financial year 2023, which is the first time the companies are obligated to report on how their economic activities are environmentally sustainable.
The purpose of the inspection is among others to clarify whether the financial companies have published the required and mandatory information in the non-financial statement in accordance with article 8 of the EU taxonomy in a complete, understandable and clear way. The companies are among others required to report on KPIs for environmentally sustainable economic activities included in their assets.
According to article 8 of the EU taxonomy, any undertaking that is subject to an obligation to publish non-financial information pursuant to article 19a or article 29a of Directive 2013/34/EU on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings (“the Accounting Directive”) shall include in its non-financial statement or consolidated non-financial statement information on how and to what extent the undertaking’s activities are associated with economic activities that qualify as environmentally sustainable under article 3 and 9 of the EU taxonomy. With the Corporate Sustainability Reporting Directive (“CSRD”), the scope of sustainability reporting will expand gradually. Read more about CSRD in our previous update.
The inspection shows that all the 20 financial companies included in the inspection have published a report regarding sustainability matters, however, the companies did only to some extent publish all the information required. In particular, the FSA noticed shortcomings in relation to the companies’ use of the required schedules for the reporting, lack of quality assurance of the report and an insufficient description of the additional information provided to help the users of the report to understand the reported numbers.
The results of the inspection show that the financial companies do report on sustainability matters, however, many of the companies still have some work to do before the reporting is complete. The Danish FSA therefore expects that the companies will take this inspection into account in their upcoming reporting to ensure that the reporting becomes clear and adequate.
The Danish FSA has outlined the following three focus areas for companies in future:
(i) Companies shall include and fill out mandatory schedules in their reporting in accordance with the form requirements.
(ii) Qualitative information shall be included and described in full.
(iii) Voluntary information may be used but not confused with mandatory information to give a better understanding of the reporting.
Due to limitations in the companies’ method of accounting and data, the theme inspection does not paint a complete picture of the companies’ environmentally sustainable activities. Especially, the following three limitations have been highlighted:
(i) Exposures to smaller companies, i.e. companies not covered by the requirements to prepare sustainability report according to the Corporate Sustainability Reporting Directive (CSRD), cannot be included,
(ii) The companies’ access to data.
(ii) The fact that several activities are not covered by the EU taxonomy.
The Danish FSA expect this will become more accurate in the next years as the data will be more comprehensive. Further, it will be possible to use voluntary reporting to elaborate on among others the exposures to smaller companies.
In continuation to the inspection, the Danish FSA has published a memorandum containing a general introduction to the reporting requirements and a review of the companies’ exposure to environmentally sustainable economic activities. Further the Danish FSA has published a good practice report containing a technical review of the reporting requirements and the Danish FSA’s expectations of the companies’ upcoming reporting.
Read the memorandum in Danish here and the report on good practice in Danish here.
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