March 2021

  • EU Platform on Sustainable Finance delivers its advice on financing the transition
  • ESMA, EBA and EIOPA delivers their advice on Article 8 of the Taxonomy Regulation
  • EFRAG’s reports on the EU sustainability standard setting and potential changes to the EFRAG’s governance and funding
  • IOSCO sees urgent need for globally consistent, comparable and reliable sustainability disclosure standards

EFRAG published its reports on the development of EU sustainability reporting standards

Following the mandates received in 2020, EFRAG submitted two reports to the EC with proposals:

  • for a dynamic and relevant EU sustainability reporting standard setting, and
  • related to the necessary governance and funding changes if EFRAG were to become the future EU sustainability reporting standard setter

The proposals on EU sustainability reporting standard setting include the foundations and operational guidelines of standard setting, and proposals on the architecture of standards and a roadmap.

In terms of the structure, EFRAG proposes to establish a non-financial reporting pillar, composed of a technical expert group and a board, in parallel to the current financial reporting pillar, which remains unaltered.

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EU Platform on Sustainable Finance delivers its advice on financing the transition

The Platform provides recommendations on how to strengthen the transition financing’s potential through the Taxonomy criteria. It underlines the importance of the EU Taxonomy to identify the investments that are much needed to reach the Green Deal goals, and its role as a tool for companies to plan and finance transition investments to reach the Green Deal and climate targets.

Amongst other recommendations, the Platform highlights the need to ensure that the forthcoming reporting and disclosure standards are coherent, pragmatic and enable all market participants, from corporates to SMEs, to access the green finance for the transition.

The European Commission (EC) will consider the advice when finalising the delegated acts and the renewed sustainable finance strategy.

EBA, EIOPA and ESMA consult on Taxonomy–related product disclosures

EBA, EIOPA and ESMA seek input on the draft Regulatory Technical Standards (RTS). The European Supervisory Authorities (ESAs) ask for input regarding disclosures of financial products investing in economic activities that contribute to an environmental investment objective, as defined by the Taxonomy Regulation.

The proposed draft RTS aim to:

  • facilitate disclosures to end-investors regarding the investments of financial products in environmentally sustainable activities
  • create a single rulebook for sustainability disclosures under the SFDR and the Taxonomy Regulation, with minimum overlapping or duplicative requirements between the two regulations

Stakeholders are invited to contribute to the consultation by 12 May.

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Sustainable Finance Disclosure Regulation (SFDR) entered into force on 10 March

The Regulation introduces changes in behavioural patterns in the financial sector discouraging greenwashing and promoting responsible and sustainable investments. The SFDR sets common EU rules on how:

  • financial product manufacturers and advisers should inform end-investors about sustainability risks
  • the impact of investments on the environment and society should be disclosed
  • financial products that are marketed as sustainability-related actually meet the requirements

European Parliament (EP) adopts Corporate due diligence and corporate accountability report

Lara Wolter’s (S&D, Netherlands) report on Corporate Due Diligence and Corporate Accountability was adopted by a large majority at the EP plenary on 10 March.

The text calls on the EU to oblige companies to identify and address human rights, health, environmental and good governance risks arising from their activities throughout their supply chain. The EP also calls for a civil liability mechanism and legal remedies for victims. The EP expects that the report will be taken into consideration in the legislative proposals to be delivered by the EC in June.

ESMA proposes rules for Taxonomy alignment of non-financial undertakings and asset managers

ESMA published its advice to the EC on Article 8 of the Taxonomy Regulation regarding how and to what extent companies’ activities are associated with economic activities that qualify as environmentally sustainable under the Taxonomy Regulation. The advice addresses:

  • definitions and criteria to calculate turnover, OpEx and CapEx KPIs
  • disclosures
  • a methodology to report against KPIs and recommendations on presentation of KPIs, including reference to the economic activities, for both asset managers and non-financial undertakings

EBA and EIOPA issued advice for financial institutions and insurance and reinsurance undertakings respectively.

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EU Climate Adaptation Strategy

The EC adopted a strategy on climate adaptation which sets out how the European Union can adapt to the unavoidable impacts of climate change. It will be implemented in coherence with other initiatives of the European Green Deal.

The EC will explore further actions for the provision of climate-relevant insurance products in the context of the Renewed Sustainable Finance Strategy:

  • examine natural disaster insurance penetration in Member States
  • strengthen dialogue between insurers, policymakers and stakeholders
  • identify and promote best practices in financial instruments for risk management
  • explore the use of financial instruments and innovative solutions to deal with climate risks

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EBA, EIOPA and ESMA recommendations on the SFDR

ESAs published a joint supervisory statement on the effective and consistent application and national supervision of the SFDR. The recommendations aim to:

  • grant effective and consistent application of the SFRD
  • promote level playing field
  • protect investors

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IFRS Foundation announced working group to accelerate convergence in global sustainability reporting

The working group (WG) will undertake technical preparation for a potential international sustainability reporting standards board under the governance of the IFRS Foundation. The WG will provide a forum for structured engagement with initiatives focused on enterprise value reporting. Specifically, it will provide technical recommendations, including further development of the prototype built on the TCFD recommendations. These will serve as a potential basis for the new board to build on existing initiatives and develop standards for climate-related reporting and other sustainability topics.

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IFAC and IIRC: accelerating integrated reporting assurance in the public interest

The International Federation of Accountants (IFAC) and the International Integrated Reporting Council (IIRC) published their initial thinking towards integrated reporting assurance. The objectives of this publication are to:

  • launch a dialogue with the accountancy profession and key stakeholders
  • enhance confidence in integrated reporting and integrated thinking, and ultimately business resilience and sustainability

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IOSCO on global sustainability standards

IOSCO sees an urgent need for globally consistent, comparable, and reliable sustainability disclosure standards, announcing its priorities and vision for a Sustainability Standards Board under the IFRS Foundation. IOSCO supports:

  1. creating the SSB as part of the IFRS Foundation structure to provide the adequate governance
  2. building on existing efforts, particularly the work of the Five (now called ‘the Alliance’)
  3. encouraging a ‘building block’ approach

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IFRS Foundation announced the way forward to sustainability reporting

IFRS Foundation Trustees have reached the following views about the strategic direction of a new Sustainability Standards Board:

  • investor focus for enterprise value
  • sustainability scope, prioritising climate
  • existing frameworks as a basis to build upon
  • ‘building blocks’ approach

In the next steps, the Trustees intend to publish a feedback statement to summarise the responses to their Consultation, as well as publish for public comment the proposed changes to the Foundation’s Constitution necessary to formalise establishment of the new board, including its composition. The consultation period will last for 90 days.

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SASB consults on taxonomy

The Sustainability Accounting Standards Board (SASB) issued a SASB XBRL Taxonomy for a 60-days public consultation.

The SEC advances on sustainability reporting

The United States (US) have advanced in the sustainability agenda recently. The US Securities and Exchanges Commission (SEC) Acting Chair Allison Herren Lee announced that they would increase their focus on climate-related disclosures, and also supported the IOSCO latest announcement on Twitter.

The SEC also announced the creation of a Climate and ESG Task Force in the Division of Enforcement which will develop initiatives to identify ESG-related violations.

More recently, the SEC issued a public consultation on how to address climate disclosure rules and guidance including which standards/frameworks to adapt, with the possibility of developing one.

German Sustainable Finance Committee recommendations for sustainable finance

The Committee is calling the federal government to implement measures like sustainability bonds, strategies for public-sector financial investments and economic support programmes. They are also asking for disclosures in corporate reporting with information on companies’ environmental impact and resilience.

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ACCA – Study case on climate change risk-related disclosures in extractive industries

ACCA’s recent study case notes that:

  • companies do not sufficiently engage with disclosures about their climate change-related risks
  • only a small number of companies acknowledge the central role of climate change on their current and future activities
  • both the front and back ends of companies’ annual reports lack clarity of and depth in climate change-related disclosures

Read moreThis curated content was brought to you by Vita Ramanauskaité, Accountancy Europe senior policy advisor since 2015. You can send her tips by email, follow her on Twitter and connect with her on LinkedIn.