The Taxonomy Regulation requires, in its Article 8, in-scope companies to include in their non-financial statements or consolidated non-financial statements information on how, and to what extent, their activities are associated with economic activities that qualify as environmentally sustainable under Articles 3 and 9 of the Regulation.  Information to be disclosed as well as timing is specified in the Disclosures Delegated Act.

As part of its objective to coordinate European supervision and enforecement activities related to disclosures under Taxonomy Regulation, ESMA collected information from national enforcers with respect to the Fiscal Year 2022 non-financial statements published by European non-financial undertakings listed in regulated markets. The focus of the fact-finding exercise was to evaluate the quality of the disclosures with which issuers have responded to the new requirements. ESMA, in particular, was keen to understand the extent to which companies had responded to points it had made in its 2022 European Common Enforcement Priorities.

The key findings identified by ESMA were:

• Disclosure of mandatory Key Performance Indicators (KPIs): Almost all issuers (96% of the sample), disclosed the required Taxonomy alignment KPIs.
• Use and completeness of the mandatory reporting templates: The reporting templates were generally used, but for 30% of the sample they were either modified or not fully completed.  ESMA reminds issuers that full reporting using the complete templates is mandatory.
• Disclosure of mandatory qualitative information: At least some of the mandatory qualitative information regarding the issuers’ assessment of their compliance with transparency requirements in relation to the nature of their activities, the technical screening criteria, the Do No Significant Harm – DNSH criteria, and the minimum safeguards was missing or insufficient for more than 40% of the assessed issuers. In addition, only 40% of the sample provided comments on their eligibility or alignment rates.
• Materiality exemption: The OpEx alignment KPI was the KPI most often not reported (4% of the sample) or reported as zero (26% of the sample). Subject to conditions and specific disclosures, the Disclosures Delegated Act makes it possible to claim a materiality exemption for the OpEx KPI. In the cases where such claim was made, ESMA found that information did not in general allow an external reader to assess whether the conditions for applying the exemption were met and/or some of the criteria attached to it were applied appropriately.
• Other areas of incorrect application:  Additional areas of incorrect application were identified in relation to the transparency on the avoidance of double counting, the screening of activities against one climate objective only or the reconciliation with financial reporting.
• Good reporting practices were also encountered, such as detailed explanations on the nature of activities or compliance tests, as well as links to the corporate sustainability strategy.

ESMA reminds issuers of the importance of providing all quantitative and qualitative disclosures required by the Disclosures Delegated Act and ‘strongly encourages’ issuers to use guidance and tools published by the European Commission too assist them in their reporting.  Its latest Statement on European common enforcement priorities, provides ESMA’s expectations in this area.

ESMA notes that it may undertake further analysis on the areas of reporting which require more clarity or on those areas it has identified where there was material incorrect application of the requirements.

The full report is available on the ESMA website.