Submissions to a consultation on revisions to the reporting requirements for the EU Taxonomy taxonomy-focused KPI reporting show scepticism among companies and investors about the usefulness of disclosing opex-related information.
The consultation was launched on 1 July by the European Securities and Markets Association (ESMA), in response to a call from the European Commission for advice on making taxonomy reporting “more useful and easier to apply”.
It focuses on revising the KPI on operational expenditures and its potential voluntary use by financial institutions, among other things.
Under the current taxonomy reporting framework, non-financial firms are required to report the proportion of taxonomy-eligible and aligned revenue, capex and opex.
In its call for feedback, ESMA described opex reporting as an area where it could “achieve substantial simplification… without resulting in material loss of information”.
A number of companies and trade groups want to remove the opex metric entirely or make disclosures voluntarily if retained, according to submissions reviewed by Responsible Investor.
Those in favour of removal include Deloitte and French asset manager association AFG, as well as Norwegian oil giant Equinor, utilities Fortum Oyj and EDF, and the German Chemical Industry Association (VCI).
“There is limited evidence that [the opex] KPI is actively used by investors or financial institutions when assessing sustainable activities or making financing decisions,” Deloitte said in its submission.
AFG said it was of “limited use in practice” and “appears disproportionate to the informational value provided”.
Similarly, Equinor described it as “not sufficiently decision-useful to justify the reporting, system, data-quality and assurance burden it creates”.
“The current opex KPI adds limited incremental insight and is difficult to reconcile to financial reporting,” the firm said.
ESMA said informal outreach ahead of the consultation launch found that “most stakeholders suggested entirely eliminating” opex disclosures, but noted that this would fall outside its remit.
The reporting obligation is underpinned by the Level 1 taxonomy regulation, and therefore can only be amended via a formal legislative procedure initiated by the European Commission and assented by both the European Parliament and EU member states.
A ‘pragmatic’ compromise?
If the opex KPI is retained, most respondents to the consultation backed an option proposed by ESMA which would rewrite the current disclosure formulation to focus on green research and development expenditure.
VCI described R&D opex reporting “as the most pragmatic solution”, adding that mandatory taxonomy reporting “should be reconsidered” more broadly due to its lack of usage.
Accountancy Europe and MSCI also supported R&D opex reporting in their responses to the consultation, with the latter opposing voluntary implementation in favour of a single mandatory metric.
“We have some reservations concerning the proposed optional opex KPI as we do not believe that voluntary additional disclosures have a positive impact on the relevance and efficiency of the taxonomy disclosures,” said MSCI.
Other policy options suggested by ESMA did not receive support, including reformulating opex to focus on green procurement. None of the companies argued in favour of keeping the status quo unchanged.
A total of 43 submissions were received by ESMA on the topic. The regulator will deliver technical advice by the end of October to the European Commission, which will make a determination on policy changes.