Transparency Enforcement Priorities

January 3, 2023 | Blog

Update for issuers listed in Luxembourg: our Luxembourg capital markets experts discuss the statement issued by the Luxembourg CSSF regarding the review and enforcement of the 2022 annual reports for listed issuers.

Enforcement of 2022 annual reports for listed issuers – CSSF priorities

The Luxembourg supervisory commission for the financial sector – the CSSF – has issued a report highlighting the topics and issues that will be subject to particular scrutiny in 2023 in respect of issuers subject to the Luxembourg law of 11 January 2008 on transparency requirements for issuers. Those are aligned with the so-called European Common Enforcement Priorities (ECEP) identified by the European Securities and Markets Authority (ESMA) and the European national enforcing authorities, being the CSSF in Luxembourg.

Priorities related to IFRS financial statements

Climate-related matters are identified as a key priority. The CSSF already closely reviewed the 2021 financial and non-financial information of issuers for which significant climate-related risks were identified, and this is to remain a priority for the 2022 annual reports. The CSSF has informed that it will tailor its review procedures in order to focus on this aspect and, where need be, it will follow-up on previous observations made in 2022. It is stressed that disclosures should not be limited to boilerplate disclosures, but should instead be specific and relevant on how climate risks have been factored in the financial statements.

Relevant issuers should also present clear and detailed information on the financial impact, both at the balance sheet and comprehensive income levels, following Russia’s invasion of Ukraine.

Lastly, it was reminded that the macroeconomic environment should also be factored in the annual reports. The main elements to be considered include the increase of inflation, increase of interest rates and increase of energy costs, given that those logically have an effect on the current business framework and can put the financial situation of issuers at risk. Issuers are thus required to assess and reflect the impacts of the macroeconomic environment and uncertainties against their financial statements, and provide relevant and accurate information to the investors. The CSSF has indicated that it will in particular pay attention on how issuers have considered (i) the potential impairment of non-financial assets which can have a significant impact on their revenues and (ii) appropriate disclosure in the management report or financial statements with regard to the rise of inflation, and explanation by issuers as to how this might affect their business.

Priorities related to non-financial statements

Priorities have also been set with regard to the requirements deriving from Directive 2014/95/EU, known as the Non-Financial Reporting Directive, for the 2022 annual reports.

Here again, climate-related matters is to remain a key topic. The CSSF already performed in the past a thematic review to examine the status of the climate-related information reported by issuers, based on the recommendations made by the guidance on non-financial reporting issued by the European Union on how to report the impact of companies’ business on the climate and the impacts of climate change on companies’ businesses. The CSSF expects significant progress to be made in this field for the 2022 non-financial information disclosed by issuers.

In addition, financial year 2022 is the first year for which non-financial undertakings are required to disclose the taxonomy eligibility, but also the alignment of their economic activities with climate change mitigation and adaption objectives in line with article 8 of Regulation (EU) 2020/852 (known as the Taxonomy Regulation). The CSSF will continue to examine the information published in accordance therewith for the relevant issuers, and intends to also challenge issuers in this respect where relevant.

Finally, it is reminded that in some instances entities should not only assess environmental and social footprint exclusively at their level, but also across the entire company’s chain, including thus suppliers, employees travel, end-of-life products treatment, etc. to provide appropriate information in respect of the entire value chain. Issuers are also encouraged to be transparent on the robustness of their data collection processes, to ensure appropriate quality of data used for the purpose of non-financial disclosures.

Other points of attention

It is also reminded that the appropriate use and disclosure of alternative performance measures (APMs) will remain a point of focus for the CSSF.

Lastly, the CSSF reminds that the 2022 annual reports will have to be prepared in compliance with the European Single Electronic Format (ESEF) – as for the 2021 financial year.

Contact information

If you have specific questions and/or requests on this topic, feel free to contact our experts: Arnaud Barchman Wuytiers van Vliet & Peggy Muck.

Disclaimer

While the greatest care has been devoted to the contents of this publication, AKD cannot be held liable in any way for the consequences of activities undertaken on the basis of this publication.

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