Finance is gaining ground in the ESG battle
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The French government should appoint H3C, Haut Conseil du Commissariat aux Comptes, as the independent regulatory authority for the control and sanctioning of non-financial auditors. What are the implications in light of the forthcoming CSRD?
Finance is gaining ground in the ESG battle
In France, an announcement with major implications went relatively unnoticed. The H3C, Haut Conseil du Commissariat aux Comptes (High council of Statutory Auditors), the independent regulatory authority for the auditing profession in France, is set to become the reference authority for the control and sanctioning of non-financial auditors. A revolution in the making.
Strengthened powers for H3C
At the 33rd Assises Nationales des Commissaires aux Comptes (National Conference of Statutory Auditors) held at the end of 2022, the French Minister of Justice, Eric Dupond-Moretti, confirmed the central role of Statutory Auditors in the upcoming implementation of the CSRD (Corporate Sustainability Reporting Directive), as the transparency requirements of major French and European companies will be significantly increased.
With this decision, which should be included in the bill that will transpose the CSRD into French law by the end of the year, the regulator will extend its influence and regulatory powers to extra-financial information. It should thus become the main supervisory authority for the work carried out not only by audit firms, but also by independent experts (such as the independent insurance service providers) in the field of ESG criteria in France. While its scope of activity was limited to financial reporting.
To do this, it will be its duty to establish a framework defining the standards of professional practice. Therefore, it will have to develop new training courses for its members and to surround itself with new talents mastering ESG criteria, with a view to reconciling financial and extra-financial audits. These needs had already been anticipated with the creation of a Sustainability Committee by the CNCC (Compagnie Nationale des Commissaires aux Comptes) bringing together some fifty experts two years ago.
The central role of finance in the spread of ESG
The evaluation of extra-financial reporting should thus come under the umbrella of finance. This confirms that holistic performance, i.e. putting financial and extra-financial criteria on an equal footing, will become the norm tomorrow. It also gives finance departments and CFOs, which are used to working with the regulator, full latitude to take control of ESG reporting. This should lead to changes in the balance of power and strengthen their weight within companies.
As a reminder, the CSRD (Corporate Sustainability Reporting Directive) is due to come into force in 2025 (based on the 2024 financial year). It aims to impose ESG communication obligations through a common reference framework for all European companies with more than 250 employees. A real turning point in terms of reporting, it will enable non-financial information to have a status comparable to that of financial information.
By giving full powers to H3C, France will extend the regulator’s duty of care and push it to adapt and reform. In the service of a new vision of performance.
Sarah Duparc, Partner and member of the Board of Directors of CFA Society France
H/Advisors Havas Paris
Sources: (i) Le Réveil du midi, Audit extra-financier : les Commissaires aux Comptes prêts à relever le défi ! (December 16, 2022) (ii) Les Echos, Reporting extra-financier : les nouveaux défis du gendarme de l’audit (March 8, 2023) (iii) Speech Marie-Anne Barbat-Layani, AMF ” L’Autorité des marchés financiers : une position d’équilibre au cœur de la régulation financière ” – Assemblée générale de l’Association française des trésoriers d’entreprise (AFTE) (April 2023)