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Future of Non-Financial Reporting (NFR) and Role of Small- and Mediumsized Accountancy Practices (SMPs) Sustainability Reporting for SMEs Webinar, 1 June 2021

Agenda 14: 00 Opening Remarks – Salvador Marín, President, EFAA 14: 10 ROUNDTABLE DISCUSSION CHAIR - Esther ORTIZ, Member, EFAA’s Accounting Expert Group Alain Deckers, DG FISMA, Head of Unit C 1 - Corporate reporting, audit and credit rating agencies Saskia SLOMP, CEO, EFRAG Luc HENDRICKX, Director, SMEunited Luca BRUSATI, Erasmus+ INTEREST project 14: 55 Closing Remarks – Paul Thompson, Director, EFAA

Opening Remarks • EFAA is the big voice for small- and medium-sized practices (SMPs) in Europe • EFAA is working to help boost capacity of SMPs to assist SMEs • to survive and recover from COVID-19 pandemic • to make the dual transition as per EU SME Strategy for a sustainable and digital Europe • EFAA welcomes the EC proposal Corporate Sustainability Reporting Directive (CSRD) – read our position statement here • “Going forward, EFAA, in concert with its member organizations and in its capacity as an active and longstanding member of EFRAG, will do all it can to help EFRAG develop sustainability reporting standards tailored to the needs and capacities of SMEs. And EFAA will help prepare SMPs for the vital role of helping advise SME clients on sustainable practices and preparing their sustainability reports just like they do their financial reports. ”

PROPORTIONALITY AND TAILOR MADE STANDARDS FOR SMEs • Building Block 4. INCLUDING SMEs IN THE EU SUSTAINABILITY REPORTING LANDSCAPE IN A PROPORTIONATE MANNER • Proposal #09. Tailored made sustainability reporting standards for SMEs • Proposal for a Corporate Sustainability Reporting Directive • Voluntary sustainability reporting for SMEs, except listed • Specific SMEs standards in 3 years more

Alain DECKERS, Head of Unit, Corporate transparency, Corporate reporting, audit and credit rating agencies DG FISMA, European Commission

Proposal for a Corporate Sustainability Reporting Directive

Background Political and policy context • European Green Deal • An economy that works for people – COVID 19 recovery • Sustainable Finance Action Plan and related legislation (especially Taxonomy and Sustainable Finance Disclosure Regulation) • Fitness Check • Growing international attention (G 7, G 20, Financial Stability Board, IFRS Foundation)

Background The need for new rules • • • Problems for users Some companies report no information Relevant information not reported Comparability Reliability Findability and usability (digital) Systemic risks to financial system Limited capital flows to sustainable companies Accountability deficit Problems for preparers • Uncertainty about what to report • Additional information requests • Cannot get adequate information from own suppliers and clients Costs and administrative burden Situation highly dynamic: problems for users & costs for preparers will increase with no EU action

Content of proposal Main changes Topics & reporting areas Scope Audit EU standards Location of reported information Digital tagging Sanctions & enforcement

Content of proposal Scope: which companies? All large companies All listed companies (exc. micro) Ø Includes non-EU companies listed on EU regulated markets. Ø Listed SMEs: 3 year phase-in, and simpler reporting regime. Ø Subsidiary exempted if parent reports according to EU requirements (or equivalent if non-EU company).

Content of proposal Coverage of sustainability topics Environment 1. 2. 3. 4. 5. 6. Climate change mitigation Climate change adaptation Water & marine Resource use & CE Pollution Biodiversity & ecosystems Mirrors EU Taxonomy Social 1. Equal opportunities 2. Working conditions 3. Human rights 1 & 2 build on European Pillar of Social Rights Governance 1. Role & composition of board and management 2. Ethics & corp. culture (inc. bribery & corruption) 3. Political engagements 4. Business relationships 5. Control & risk management

Content of proposal Double materiality

Content of proposal Required reporting areas And… q targets and progress Business model and strategy… q role of board &management q resilience q policies q opportunities q due diligence process q transition plans q principal adverse impacts q interests of stakeholders q impacts q strategy implementation q principal risks and risk management q indicators q process to identify information reported q intangibles

Content of proposal Standards • Standards for large companies Mandatory • Standards for SMEs Mandatory - for SMEs under scope (with securities listed on EU regulated markets) Voluntary - for all other SMEs

Content of proposal Standards ü meet quality criteria ü cover detailed E, S and G topics ü take account of EU legislation and initiatives ü take account of global standardsetting initiatives ü European Financial Reporting Advisory Group (EFRAG) develops draft standards ü Commission adopts standards as Delegated Acts after consulting relevant EU bodies

Content of proposal Standards Assuming co-legislators agreement in Q 1/Q 2 2023 2022 2021 Adoption of 1 st set of standards (L 2) Adoption of 2 nd set of standards (L 2) Adoption of SME standards (L 2) by 31 October 2022 by 31 October 2023 - all sustainability matters and all reporting areas - - to serve the needs of financial market participants subject to the disclosure requirements of SFDR complementary information, where necessary - information specific to the sector in which the undertaking operates

Content of proposal Location: where should information be reported? Management report Exempted subsidiary companies: publish the consolidated management report of the parent company, and include a reference in its individual management report to the fact that it is exempted.

Content of proposal Assurance What? Who? Ø ‘Limited assurance’ Ø Statutory auditor Ø ‘Reasonable assurance’ if Commission adopts assurance standards for reasonable assurance Ø If MS allows for it, any other accredited independent assurance services provider

Content of proposal Digital Companies q financial statements and management report in a single electronic reporting format (XHTML) q mark-up sustainability information only, to make it machine readable Member States q ensure that information is published in electronic format q ensure that reported information reaches Officially Appointed Mechanisms (OAMs) ESAP

SMEs and the CSRD proposal Having and sharing sustainability information will increasingly become part of business practice. Provides of finance, as well as business partners (especially but not larger company clients), increasingly expect a minimum amount of information. Our aim: to enable, and not to endanger, SME participation in and contribution to transition to a sustainable economy. Listed SMEs All other SMEs In scope, but No new legal requirements, but • 3 years after large companies • may use proportionate SME standards on a voluntary basis • may use proportionate SME standards And: exploring possibility for technical support to Member States to support SMEs

Indicative timeline • 21 April 2021: Commission adopts proposal • Q 1/Q 2 2022: Co-legislators reach agreement on level 1 • Mid-2022: first set of draft standards ready • End-2022: first standards adopted in level 2 Delegated Regulations • 2024: companies publish first reports according to standards (covering financial year 2023) The development of standards will begin in parallel to negotiations on the level 1 legislation.

Thank you © European Union 2020 Unless otherwise noted the reuse of this presentation is authorised under the CC BY 4. 0 license. For any use or reproduction of elements that are not owned by the EU, permission may need to be sought directly from the respective right holders. Slide xx: element concerned, source: e. g. Fotolia. com; Slide xx: element concerned, source: e. g. i. Stock. com

Saskia SLOMP, CEO, EFRAG

SUSTAINABLE FINANCE EC INITIATIVES AND EFRAG Ø March 2018 EC Action Plan Financing Sustainable Growth, section Disclosure and Accounting: Ø EFRAG established a European Corporate Reporting Lab (Q 3 2018) Stimulate innovation in the field of corporate reporting in Europe by identifying and sharing good practices – three projects including climate-related reporting; reporting on risks and opportunities and the linkage with the business model Ø April 2021 EC Proposal for a CSRD as part of the Sustainable Finance Package Ø EFRAG to provide technical advice (draft standards) Ø EFRAG called upon to start interim technical work and governance reforms as soon as possible (Commissioner Mc. Guinness- letter 12 May 2021) Ø EFRAG observer on EC Platform on Sustainable Finance EFAA 1 June 2021 25

PROJECT ON PREPARATORY WORK FOR THE ELABORATION OF POSSIBLE EU NON-FINANCIAL REPORTING STANDARDS FINAL REPORT 54 PROPOSALS FOR A RELEVANT AND DYNAMIC EU SUSTAINABILITY REPORTING STANDARD-SETTING Link to the report: https: //www. efrag. org/Lab 2 EFAA 1 June 2021 26

THE REPORT ORGANISATION AND STANDARDS STRUCTURE Introduction: Purpose 3 Target architecture 1 Foundations 2 overarching principles: + 6 building-blocks Three Layers 2 Six Conceptual guidelines 3 Reporting areas: Strategy, Implemetation, Performance measurement Sector-agnostic Sector-specific 3 Topics: Environment, Social, Governance+ Entity-specific Sustainability Reporting = Sustainability Statements 4 EFAA 1 June 2021 Roadmap and co-construction 25 May 2021 European. Issuers Policy Committee 27

JEAN-PAUL GAUZÈS AD PERSONAM MANDATE FINAL REPORT RECOMMENDATIONS ON THE POSSIBLE NEED FOR CHANGES TO THE GOVERNANCE AND FUNDING OF EFRAG IF IT WERE TO BECOME THE EU SUSTAINABILITY REPORTING STANDARD SETTER Link to the report EFAA 1 June 2021 28

EFRAG’S PROPOSED ORGANISATION CHART EFAA 1 June 2021 29

Luc HENDRICKX, Director, SMEunited

SMEunited : CSRD actual shortcomings • CSRD will neither benefit SMEs nor their direct stakeholders • Uncertainty on ‘SME standard’: Listed SME one or real SME (micro) standard? • In absence of timely ‘SME-standard’ market will impose big industry one • SMEs will have no transposition period (contrary to Listed SMEs – 3 years) • No guarantee that ‘SME standard’ will be accepted by non-SME clients • Scope and content can be changed by EP and Council + Transposition: Goldplating • No ‘one in/one’ out compensation • Estimated costs for SMEs: between 10 and 200 billion euro. • No budget for SME support.

Luca BRUSATI, Erasmus + INTEREST project

SMEs and sustainability reporting: state of the art • GRI database at the end of 2019: 116 European SMEs (Ortiz-Martinez & Marin-Hernandez 2020) • Comparative study of six European countries: 17 SMEs engaging in sustainability reporting (INTEREST project) ü Germany: 3 SMEs (any standard) ü Hungary: 1 SME (any standard) ü Italy: 3 SMEs reporting on the basis of IIRC standards ü Poland: 5 SMEs (any standard) ü United Kingdom: 5 SMEs reporting on the basis of IIRC standards Reality check: how much capacity is currently available?

Who is going to support SMEs? • Relative role to be entrusted to • Internal staff (? ) • Sustainability experts (? ) • Large accounting practices (? ? ? ) • Small and medium accounting practices • Major effort needed to equip professionals with relevant skills • e. g. , Italian Legislative Decree no. 139/2005: statutory auditors are expected to have the “technical skills required to (…) prepare and (…) audit environmental, social and sustainability reports” (Article 1) – on the basis of what standard?

INTEREST: an experiment in capacity building (1) • The “Integrated Reporting for SME Transparency” project is funded by the Erasmus+ Programme with the specific objective to support the adoption of integrated reporting (<IR>) and integrated thinking among European SMEs Budapest Business School (HU) – Project Leader Rhine-Waal University of Applied Sciences (DE) Leeds Beckett University (UK) Wroclaw University of Economics and Business (PL) European Federation of Accountants and Auditors for SMEs (BE) Udine University (IT) Babes-Bolyai University (RO) Business Hungary (HU) MAC-Team aisbl (BE)

INTEREST: an experiment in capacity building (2) • Intended beneficiaries: • SME owners and managers • SME accountants and sustainability consultants • Instructors and students • Expected outputs (2019 -2022): • An <IR> framework suitable to keep track of corporate performance • An <IR> guide providing step-by-step support to SME owners and managers willing to measure and communicate value creation • An <IR> curriculum featuring a fully-fledged set of learning units targeted to the specific context of SMEs In progress

INTEREST: lessons learnt so far • Interest for sustainability reporting is not homogeneous across EU Member States • Ongoing debate about the purpose of sustainability reporting: • Support to the incorporation of sustainability in corporate strategy (“shared value”) • Tool for stakeholder engagement (reputation) • Box-ticking exercise (compliance) • Actual interest by SMEs, SME associations and accounting practices still to be ascertained

Questions & Answers (Q&A)

Closing Remarks • SMPs have key role to play: • advising SMEs on sustainable business practice; • preparing sustainability reports; and • providing assurance on these reports • EFAA and its member organizations have key role to play: • helping EFRAG develop sustainability reporting standards for SMEs • helping SMPs to fulfil their key role (as explained above)

EFAA Secretariat The European Federation of Accountants and Auditors for SMEs 4 Rue Jacques de Lalaing, B - 1040 Brussels, Belgium T +32 2 736 88 86 F + 32 2 736 29 64 E secretariat@efaa. com Website www. efaa. com Twitter @EFAAfor. SMEs 40