Rosa Mª García Piñeiro, board member at Caixabank, Acerinox, and Ence—serving as chair of the sustainability committee for the latter two and as a committee member at Caixabank—explains that “the directive does not set the materiality threshold. The company decides it based on its own criteria. There is nothing in the legislation that prescribes what is material and what is not. The auditor-verifier may have one opinion, the company may have another, and you will agree or disagree, but in the end, what matters is transparency: explaining how materiality was determined and the outcome of the exercise.”
Since the beginning of the century, we have had a single currency, a single central bank… but not a single cross-border merger, nor a risk-free European asset that would allow the euro to steal market share from the dollar… Everything seems to remain half-done. Why?
Indeed, but progress has been made toward the Banking Union, with the creation of the Single Supervisory and Resolution Mechanisms. And although no clear progress has been made on the Capital Markets Union, which is so crucial to boosting growth in Europe, it seems that we are gradually moving in the right direction—now under the name of the Savings and Investments Union. We are moving slowly but steadily, which is how things are done in Europe. The big problem is that, when it comes down to it, member states do not want to lose power, and each exercises its own capabilities when transposing directives, creating 27 different regulations. It is clear that we need unity to generate growth, knowledge, and jobs in Europe, but for the moment, member state governments do not seem to be fully aligned.
In the banking system, perhaps there is still a fear of creating giants that are ‘too big to fail’ or ‘too big to bail out’…
That is true, but the European banking sector is much better prepared today than it was during the last financial crisis because the European Central Bank’s requirements have become much more sophisticated. Spanish banking, and European banking in general, is complying with them strictly. I believe the key is to strike a balance between having players that can genuinely support large companies or major investments, as happens in the United States, and having an oligopoly, which would not be good either.
A board member told us that these unbearably long non-financial reports will only be read by the auditor and will hardly influence an investor’s decision-making, let alone “change the world.” What do you think?
Non-financial information has existed since the 2014 Non-Financial Reporting Directive, which was transposed in Spain more restrictively than in other countries. Then, with the arrival of the famous Corporate Sustainability Reporting Directive—the CSRD—many more indicators appeared when it came to reporting.
But in my opinion, the main problem is that this directive is being misused. First of all, it is unfortunate that it is called a reporting directive. The CSRD is not a reporting directive. Yes, effectively, there are a series of indicators that it asks companies to report on, but what it fundamentally requires is a materiality analysis of key ESG indicators within businesses.
The famous double materiality: a materiality analysis from a financial perspective—how society and the environment can impact my business—and an impact materiality, meaning how my business and my operations can impact society and the environment. Whatever is truly material is what will define the applicable indicators. For those indicators, you are not only required to report—to talk about the past—but also to present medium- and long-term targets, along with the strategy and resources to achieve them. Therefore, rather than a reporting directive, we are talking about a management directive. I always refer to this directive as a general accounting plan applied to ESG matters.
There is a multitude of indicators…
There are a number of social, environmental, and governance initiatives, and if the company defines all of them as material, it suddenly finds itself with a vast number of indicators to report on. I think that is what has happened; in the initial phase, when in doubt, companies determined that water, people, the supply chain, pollution, raw materials… everything is material. The moment everything is considered material from an impact perspective, you end up with a massive number of indicators that you have to report on.
However, the directive does not set the materiality threshold. The company decides it based on its own criteria. So, many companies complicate the implementation of this directive more than necessary… I believe we have room to simplify within the current regulatory framework, and even more so with the arrival of the Omnibus Directive.
In other words, it is being misunderstood and applied to the extreme…
That is my impression. Simplification may involve a discussion with the auditor-verifier regarding the criteria that determine materiality, but there is nothing in the legislation that prescribes what is material and what is not. The auditor-verifier may have one opinion, the company may have another, and you will agree or disagree, but in the end, what matters is transparency: explaining how materiality was determined and the outcome of the exercise.
