Sustainability

• JURI Committee hearing on the final CSRD negotiations
• ECON vote on green bond proposal delayed
• EFRAG issues Exposure Drafts on ESRS
• ISSB establishes a working group to enhance compatibility between global baseline and jurisdictional initiatives

ESG Governance: Recommendations for Audit Committees

Our latest  publication ESG Governance: Recommendations for Audit Committees provides an overview of the expected audit committee’s roles and responsibilities, when it comes to:

• sustainability reporting, as set out in the European Commission’s (EC) proposal for a Corporate Sustainability Reporting Directive. This directive would expand the audit committee’s mandate to include sustainability reporting and enable them to support company boards
• the expected implications of the corporate sustainability due diligence duty for audit committees, as presented in the EC proposal for a Corporate Sustainability Due Diligence Directive

We include recommendations for audit committee regarding their ESG responsibilities in light of these legislative requirements and stakeholders’ expectations, with a focus on audit committee’s:

• competencies and composition
• responsibilities for ESG reporting and assurance

We also propose a set of questions to help audit committees adopt enhanced ESG responsibilities in the areas of:

• internal control and risk management systems
• ESG disclosures & assurance

JURI Committee hearing on the CSRD final negotiations

On 25 April, the European Parliament’s (EP) Legal Affairs (JURI) Committee held a hearing to report back on the ongoing CSRD trilogues. The second political trilogue meeting took place in the morning of the same day.
MEP rapporteur Pascal Durand (Renew Europe, France) confirmed that all parties show a strong will to advance in the negotiations and the French Presidency is keen to finalise the CSRD text before the end of their mandate.  He noted the following points as the most challenging:

• SMEs – the Council and the EC don’t seem to agree with the EP’s position on excluding listed SMEs from the scope; this point is still being debated
• extra-territoriality – if non-EU companies operating in the EU single market are not in the scope, then EU companies will be at a disadvantage; progress seems to have been made on this point
• reporting on consolidated or subsidiary level – the Council’s position is requiring reporting at the top but nothing at the bottom; the discussion is still ongoing
• assurance – the EC would come back with a new proposal on whether assurance on sustainability information can be done by the same statutory auditor as for financial statements

It has been previously indicated that the last political trilogue would take place on 19 May, but it seems that this has been pushed to 30 May as the negotiations are taking longer. In the meantime, technical meetings take place.

ECON vote on green bond proposal delayed

The EP Economic Affairs (ECON) Committee was expected to vote on its position on 28 April, but it was postponed for the second time. It seems there are difficulties in finding a compromise on transitional plans and there are concerns about including nuclear energy within the EU Taxonomy. The Council has finalised its position and is ready to enter final negotiations.

Accountancy Europe’s letter on European sustainability reporting standards

Accountancy Europe’s letter to Commissioner McGuinness calls for the development of purposeful and effective European sustainability reporting standards (ESRS).

Similar letters were sent to the EC and/or EFRASG from the American Chamber of Commerce to the European Union and other non-EU organisations, the French association of large companies (AFEP) and Deutsches Aktieninstitut, the Dutch Accounting Standards Board, and other stakeholders.

EFRAG appoints its Sustainability Reporting Technical Expert Group

The new European Financial Reporting Advisory Group (EFRAG)Sustainability Reporting Technical Expert Group (SR TEG) will provide technical advice to the EFRAG Sustainability Reporting Board on the draft European sustainability reporting standards. The SR TEG will also be responsible for the development of sustainability standards and, along with the Financial Reporting TEG, ensure connectivity between financial reporting and sustainability reporting.

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EFRAG issues Exposure Drafts on ESRS

EFRAG issued 13 Exposure Drafts on European Sustainability Reporting Standards (ESRS). The public consultation aims at receiving feedback on three key aspects of the Exposure Drafts:

1. the relevance of the proposed architecture, the implementation of the CSRD principles and the overall content of each ED
2. the possible options for prioritising/phasing-in the implementation of the ESRS
3. the adequacy of each disclosure requirement mandated by each ED

The consultation survey is organised in three different sections:

• Overall ESRS Exposure Drafts relevance – Architecture
• Overall ESRS Exposure Drafts relevance – Implementation of CSRD principles
• Overall ESRS Exposure Drafts relevance – Exposure Drafts content
• ESRS implementation prioritasion / phasing-in
• Adequacy of Disclosure Requirements – cross-cutting standards
• Adequacy of Disclosure Requirements – Environmental standards
• Adequacy of Disclosure Requirements – Social standards
• Adequacy of Disclosure requirements – Governance standards

Whilst the consultations are issued in the name of the EFRAG PTF-ESRS, it will be the EFRAG SR TEG and SRB which will analyse the feedback received and finalise the Technical Advice to the EC.

The public consultation period will be open until 8 August 2022.

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EC believes the future legislative proposal to ban forced labour products should apply to SMEs

On 25 April, the EP Committee on International Trade (INTA) discussed with experts and the EC the forthcoming legislative proposal to ban forced labour products from the market.

The EC stance is that SMEs should not be excluded from the scope of the future legislative instrument. However, the legislative tool will need to be proportionate and not cause administrative burden. The EC plans to publish its proposal in September 2022.

IFRS Foundation announces upcoming presence in Montreal

The International Financial Reporting Standards (IFRS) Foundation will set up presence in Montreal, where it will host significant International Sustainability Standards Board (ISSB) standard-setting responsibilities and associated functions – including a share of board meetings, leadership and resources. This follows a similar announcement about the ISSB’s presence in Frankfurt, which will also host key functions and coordinate activities in Europe, Middle East and Africa region. Arrangements for the Asia-Oceania region are progressing.

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ISSB establishes a working group to enhance compatibility between global baseline and jurisdictional initiatives

The establishment of this group represents an opportunity to align disclosure requirements at a jurisdictional and international level to deliver the global baseline requested by many investors and stakeholders. In addition, the ISSB announced the creation of a new advisory body, the Sustainability Standards Advisory Forum (SSAF), during the next quarter.  SSAF’s objective would be to facilitate regular dialogue with and provide high-level advice from a broad set of jurisdictions. The EC, EFRAG, the Chinese Ministry of Finance, the Japanese Financial Services Authority, the Sustainability Standards Board of Japan Preparation Committee, the UK Financial Conduct Authority and the US SEC are all members of this working group.

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IASB adds to its standard setting agenda a project on climate-related risks

During the meeting held on 25 April 2022, the International Accounting Standards Board (IASB) decided to add to its work plan for 2022-2026 an application project on climate-related risks, alongside with other 6 projects. This project would aim to investigate further matters raised by respondents and the underlying cause of those matters while considering whether any narrow-scope actions might be needed. As a next step, the IASB will publish a statement summarising feedback on the Request for Information and the IASB’s activities and work plan for 2022 to 2026.

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