Sustainability

• EFRAG continues working on ESRS
• Institutional negotiations on the CS3D
• Czech Presidency kicks off final EU negotiations on the green bond proposal
• EC proposes banning products made with forced labour
• IOSCO encourages standard-setters’ work on sustainability reporting assurance
• International Sustainability Standards Board work on sustainability reporting standards

Accountancy Europe contributes to consultations on sustainability reporting

Accountancy Europe’s comment letters to the International Sustainability Standards Board (ISSB) consultations on IFRS S1 General Requirements Exposure Draft (here) and IFRS S2 Climate Exposure Draft (here) address structure, materiality, connectivity with financial information, and call for collaboration with regional initiatives.

We also contributed to most of the European Sustainability Reporting Standards (ESRS) Exposure Drafts issued by the EFRAG Project Task Force on ESRS. We sent a letter to Commissioner McGuinness and issued a statement highlighting our main comments on the overall approach on ESRS, double materiality, due process as well as calling for global alignment.

Finally, we emphasise the paramount role of the public sector in sustainability issues and call for connectivity with financial information in our response to the International Public Sector Accounting Standards Board public consultation on Advancing Public Sector Sustainability Reporting.

EFRAG continues working on ESRS

The EFRAG Sustainability Reporting Technical Expert Group (SR TEG) and Sustainability Reporting Board (SRB) will consider the responses received to the public consultation on the European Sustainability Reporting Standards (ESRS). EFRAG needs to deliver the final first set of standards to the European Commission (EC) by November 2022.

Two members with special focus on SMEs and social expertise joined the SR TEG over the summer. EFRAG is also recruiting permanent and seconded (paid or in-kind) sustainability reporting professionals. The deadline for applications is 30 September 2022.

EFRAG is also establishing Community Sector Groups to allow any interested stakeholder to contribute to the development of Sector specific draft ESRS and the organisation of workshops and outreach events. Deadline to join – 7 October 2022.

EFRAG’s Proactive Agenda to address connectivity between financial and sustainability information

EFRAG also published their Proactive Agenda for 2022 – 2026, with the finalisation of the International Accounting Standards Board’s (IASB) agenda (see below). EFRAG will work on the connectivity between financial and sustainability reporting. A project on pollutant pricing mechanisms has been put in the reserve list. Read more

Institutional negotiations on the CS3D

The European Parliament’s Legal Affairs (JURI) committee exchanged views on 5 September. The rapporteur and shadow rapporteurs noted the need to:

• include the entire supply chain in the scope
• promote a risk-based assessment
• help SMEs cope with the indirect impact of the directive

Rapporteur MEP Lara Wolters (S&D/Netherlands) is expected to present a draft report by the end of October.

On 6 September, the Council’s Company Law Working Party discussed the Corporate Sustainability Due Diligence Directive (CS3D) proposal.

Czech Presidency kicks off final EU negotiations on the green bond proposal

The first trilogue on the EU green bond standard proposal (EUGB) took place in July. The meeting focused on the key issues such as:

• the EUGB scope and nature
• interplay between the EUGB and other EU legislation (CSRD, SFDR, Taxonomy)
• use of the EUGB for green securitisation and liability and link with the Prospectus Regulation

Next trilogue is expected to take place in October.

Green NGOs leave EU Sustainable Finance Platform

Five environmental and consumer NGOs walked out of the Taxonomy expert group claiming the EC has interfered politically in the EU Platform’s on Sustainable Finance work. NGOs also denounce that the EC has ignored expert recommendations without providing any scientific justifications for their decisions. Read more

SFDR regulatory standards come into force

The Sustainable Finance Disclosure Regulation (SFDR) regulatory technical standards (RTS) adopted via delegated acts were published in the EU Official Journal on 25 July. Those standards detail:

• content and presentation of information for the ‘do no significant harm’ principle
• content, presentation and methodologies for sustainability indicators and adverse sustainability impacts
• content, presentation of information for the promotion of environmental or social characteristics and sustainable investment objectives in pre-contractual documents, on websites and in periodic reports

The RTS will apply as from 1 January 2023.

EC proposes banning products made with forced labour

The proposed regulation prohibits products made with forced labour on the EU market. It is proposed to apply the ban to all products, including their components, all economic operators, economic sectors, stages of production or steps of value chains.

As next steps, the EP and the Council will start institutional negotiations.

OECD consultation to revise G20/OECD Principles of Corporate Governance

The Organisation for Economic Co-operation and Development (OECD) opened a public consultation on the Review of the G20/OECD Principles of Corporate Governance for comments by 21 October.

The objective is to update the Principles in light of recent evolutions in capital markets and corporate governance policies and practices.

OECD and G20 countries identified the following priority areas to take into consideration:

• environmental, social and governance risks management
• digitalisation
• changes in corporate ownership and concentration
• the role of institutional investors and stewardship

IOSCO encourages standard-setters’ work on sustainability reporting assurance

International Organisation of Securities Commissions (IOSCO) welcomed the work on assurance of sustainability information by the International Ethics Standards Board for Accountants (IESBA) and the International Auditing and Assurance Standards Board (IAASB). In particular, the plans to work towards high-quality, global assurance and ethics, including independence, standards that are profession-agnostic and can support limited and reasonable assurance of sustainability-information.

The IAASB and IESBA also issued a statement welcoming IOSCO’s statement of support.

International Sustainability Standards Board’s appointments

Over the summer, the International Sustainability Standards Board (ISSB) completed its 14 seats (see here and here). This included the appointment of the second ISSB Vice-Chair, Mr Jingdong Hua, who will oversee the development and implementation of the ISSB’s strategies to support and include stakeholders in emerging and developing economies as well as small and medium-sized companies.

The IFRS Trustees announced the appointment of seven organisations in the Sustainability Consultative Committee (SCC), which serves as an advisory forum to the ISSB. The International Monetary Fund, OECD, the United Nations and the World Bank hold the four permanent seats at the SCC.

The ISSB also completed the consolidation with the Value Reporting Foundation, and now governs the Integrated Reporting Framework as well as the SASB standards.

International Sustainability Standards Board work on sustainability reporting standards

The ISSB received global response on its consultations. IOSCO announced that its due process for the potential endorsement of ISSB standards will start after the first two standards have been finalised. In addition, African ministers supported called for early adoption of the ISSB’s standards by African jurisdictions and companies.

The ISSB met on 20-23 September to continue work on their two first sustainability reporting standards.

IASB adds climate project to its workplan

The International Accounting Standards Board (IASB) finalised its workplan for 2022 – 2026 and added a project on climate-related risks in financial statements to it. Read more