ESMA announces focus on ESG, macro environment, Russia’s invasion of Ukraine

The European Securities and Markets Authority (ESMA) has revealed its enforcement priorities for this year, highlighting the impact of Russia’s invasion of Ukraine, the macroeconomic environment and climate-related matters in financial and non-financial information.

The annual Public Statement on European Common Enforcement Priorities by the EU’s financial markets regulator and supervisor also notes the importance of comprehensive disclosures pursuant to Article 8 of the Taxonomy Regulation.

ESMA wants its recommendations to be considered by national enforcers when they monitor and assess the 2022 annual financial reports of listed companies.

The 2022 enforcement priorities for financial statements prepared in accordance with IFRS cover:

  • a call for consistency between the information disclosed within the IFRS financial statements and the non-financial information concerning climate-related matters, impact of climate risks in impairment of non-financial assets, recognising and measuring provisions and disclosure of the accounting treatment followed when entering into power purchase agreements;
  • enhanced transparency of the impacts of Russia’s invasion of Ukraine on issuers’ financial statements; and
  • reflection of the current macroeconomic environment in the measurement of employee benefits, impairment of non-financial assets, recognition of revenue and expected credit losses for financial instruments.

Climate, taxonomy, and transparency

The recommendations concerning non-financial information refer to:

  • climate-related matters, including transition plans and the importance of enhancing transparency on the goals within such plans, with a call for caution and specificity on carbon neutrality commitments, sufficient explanations of uncertainties surrounding climate-related targets and clarity on the issuer’s reporting on greenhouse gas emissions;
  • a call for enhanced disclosures on taxonomy eligibility and alignment by non-financial undertakings and the need for financial undertakings to prepare for taxonomy alignment reporting in 2024; and
  • transparency on the scope of the issuer’s non-financial reporting (possible coverage of value chains) and robustness of the data used for the non-financial reporting.

ESMA’s statement highlights that issuers are expected to comply with the  Alternative Performance Measures (APM) Guidelines and ESMA Q&As on APMs in relation to all APMs used.

In this respect, subtotals included in financial statements and in the notes may fall within the scope of the guidelines if they are presented in management reports, prospectuses and press-releases.

Regarding the European Single Electronic Format (ESEF), the Statement underlines that starting from the financial year 2022 and pursuant to the regulatory technical standard on ESEF, issuers should block tag the notes to the financial statements. More information here.

National enforcers will incorporate the recommendations into their examinations and taking corrective actions where appropriate. ESMA will then collect data and communicate its findings in its report due in spring 2024.