CSSF’s enforcement of the 2023 annual reports by issuers subject to transparency law

The European Securities and Markets Authority (“ESMA”) together with the European national accounting enforcers, including the Commission de Surveillance du Secteur Financier (“CSSF”), identified the European Common Enforcement Priorities (“ECEPs”) for the 2023 annual reports to which particular attention will be paid by the regulators when monitoring and assessing the application of the relevant reporting requirements. These ECEPs are extensively detailed in the ESMA’s public statement dated 25 October 2023¹ and the CSSF’s public statement dated 8 January 2024.²

Issuers subject to the law of 11 January 2008 on transparency requirements, will have to take into account these ECEPs for the IFRS financial statements, the non-financial statements and the alternative performance measures to be included in their 2023 annual reports.

The CSSF will focus in its 2024 enforcement campaign on:

(i) the disclosure of the impact of climate-related matters in the IFRS financial statements and in the non-financial statements;

(ii) the disclosure of the macroeconomic environment in the IFRS financial statements; and

(iii) the disclosure under and the impact of Article 8 of the Taxonomy Regulation.³

The CSSF, inter alia, pointed out the following:

• Climate-related matters topics will require specific and relevant information on how climate risks have been factored in the financial and non-financial statements. In such respect, best practices have been illustrated by the ESMA in its report dated 25 October 2023.⁴
• Climate-related risks and opportunities will have to be considered in terms of impairment testing of non-financial assets.
• Issuers should assess whether a multi-scenario approach to expected cash flows would be more appropriate than the traditional one-scenario fits all approach due to the correlation and uncertainty pertaining to climate change.
• Information should be provided when climate-related matters impact “(i) the business plan assumptions used when estimating the recoverable amount of assets, (ii) the period considered beyond the business plan and if and how cash flows are impacted in this context, or (iii) the financial assumptions used, such as the discount rate and the growth rate.”
• As high inflation and volatile interest rates may impact an issuer’s ability to meet covenant requirements, issuers should consider providing disclosures about covenants and the impact of any potential breaches.
• Renegotiated financing arrangements during 2023 as well as the current macroeconomic conditions should be adequately disclosed and reflected in the accounts.
• Alternative Performance Measures (APM) and disclosure under the Taxonomy Regulation will remain an important point of attention.

For the full CSSF publication, please read the CSSF ‘s public statement dated 8 January 2024.

¹Link: https://www.esma.europa.eu/sites/default/files/2023-10/ESMA32-193237008-1793_2023_ECEP_Statement.pdf

²Link: https://www.cssf.lu/wp-content/uploads/C_Enforcement_2023_annual_reports_080124.pdf

³Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment

⁴Link: https://www.esma.europa.eu/sites/default/files/2023-10/ESMA32-1283113657-1041_Report_-_Disclosures_of_Climate_Related_Matters_in_the_Financial_Statements.pdf