Annual supervisory report on non-financial information of security issuers

The Spanish Securities and Exchange Commission (CNMV) has published the supervisory report on the 2020 non-financial statements (NFS) of security issuers.

CNMV’s supervision of non-financial information has a twofold scope: (i) formal, regarding compliance with reporting requirements of all NFS received; and (ii) substantive, regarding the quality, content, and material aspects of the information of a certain number of NFS.

As part of this oversight, the regulator made various requests to issuing entities regarding the content of the 2020 NFS. These requests referred among other aspects to (i) metrics used in reporting; (ii) how the business model impacts and is impacted by non-financial matters; (iii) pay gap calculation (recommending its breakdown by professional category and country); (iv) description of environmental risks (including the means to achieve the targets); and (v) the lack of comparative information in certain key performance indicators (KPI).

The CNMV points out that the information reported by issuers in their NFS focuses mainly on the “inside-out” perspective; i.e., companies’ social and environmental impact. The CNMV encourages issuers to improve and expand the quality of the “outside-in” perspective, considering how non-financial aspects in a broad sense affect companies’ value not only in the short but also in the long term.

Although issuers generally state their commitment to respect human rights, the CNMV asks them to be more specific in their risks and policies—especially as regards the scope of their supply and distribution chains.

It is worth noting that, for the first time since NFS reporting became mandatory (2018), all issuers’ audit reports are free from qualifications. However, the CNMV draws attention to the high degree of concentration in the sector and to the fact that most auditors merely verify the minimum information required by Act 11/2018.

The CNMV announces that in the supervision of 2021 NFS, it will pay special attention to greenhouse gas emissions, the scope of information, and stakeholders’ involvement in companies’ value chain.

Also, it will continue to review the breakdown of COVID-19 impact. In her speech at the Spanish Issuers’ Conference “Sustainability: the importance of transparency,” Ms. Montserrat Martínez Parera, Vice-Chair of the CNMV, highlighted the following areas for improvement in NFS reporting: (i) methodology description, calculation sources, and scope of greenhouse gas emissions, urging to include the emissions of all actors in the value chain; (ii) pay gap calculation methodology; and (iii) breakdown by complaint channel, requesting more information on handling procedures.