The implementation of EU Directive 2014/95/EU in Malta : an analysis

Abstract

Purpose: This study aims to assess the views, and identify any current concerns and recommendations, of selected Maltese stakeholders on the implementation of Directive 2014/95/EU in Malta with respect to a number of key areas. Design: In order to achieve the objectives of this study an inductive approach was adopted. Ten semi-structured interviews were held with Maltese subject entities and other stakeholders. Findings The study findings demonstrate that local non-financial disclosures provide minimal factual information, even though the majority of interviewees believe that the benefits gained exceed implementation costs. In this regard, the main weaknesses identified are that materiality is not well-defined, and a high level of flexibility and subjectivity is allowed this being brought about by the lack of a mandatory structure and sector-specific KPIs, the inclusion of the ‘comply-or-explain’ provision and the safe harbour principle, which leave room for abuse. These hinder comparability and competitiveness, amongst other factors. The inclusion of an assurance requirement of the content may mitigate some of these shortcomings, even if it presents a number of challenges. Another pertinent factor appears to be its limited scope, often meaning that close competitors are not required to disclose such information, resulting in the absence of a level-playing field. Recommendations made include broadening the scope to all listed entities, high-risk sectors or all entities on a risk-based approach. Conclusion: Directive 2014/95/EU and its transposition in Malta were the first steps towards non-financial reporting, which is increasingly perceived by investors to provide a long-term view, contrary to financial measures. Despite this, it has a number of shortcomings which future amendments aim to address. Value: While addressing the literature gap, this study highlights the difference in perspective between subject entities and other stakeholders on the value of non-financial disclosures to users. This may be a key contributing factor to the generally boilerplate disclosures locally. It also provides the regulator with necessary feedback to address the weaknesses identified.