April 2021

  • European Commission published a Sustainable Finance package, including a proposal for a Corporate Sustainability Reporting Directive and the EU Taxonomy Climate Delegated Act
  • ESMA reports on the enforcement of corporate disclosures
  • EU co-legislators reach a provisional political agreement on the European Climate Law
  • IOSCO committed to contributing to the IFRS Foundation’s sustainability project

The new EU Directive brings corporate sustainability reporting to next level

The European Commission (EC) adopted a proposal for a Corporate Sustainability Reporting Directive (CSRD) to strengthen non-financial reporting rules set out in the Non-Financial Reporting Directive.

The CSRD introduces the following main changes:

  • scope expansion to all large companies and companies listed on EU regulated markets (except listed micro companies)
  • (limited) assurance over sustainability reporting
  • reporting against mandatory EU sustainability standards (EC will adopt standards for large companies and separate, proportionate SMEs standards)
  • introduction of more detailed reporting requirements
  • digital tagging of reported sustainability information in accordance with a digital taxonomy

The EC’s proposal is part of the broader Sustainable Finance package, which also includes the EU Taxonomy Climate Delegated Act and delegated acts on fiduciary duties, investment and insurance advice. The EC adopted this set of measures as part of its efforts to achieve EU climate neutrality by 2050.

Accountancy Europe issued a statement on the new CSRD and an accompanying one on sustainability reporting standards as a reaction to the latest EU developments.

EC adopts the EU Taxonomy Climate Delegated Act

The EU Taxonomy Climate Delegated Act aims to support sustainable investment by specifying which economic activities contribute the most to the EU’s environmental objectives. The delegated act will set the first technical screening criteria to define which activities contribute positively to climate change adaptation and mitigation, based on the scientific advice by the Technical Expert Group on Sustainable Finance. The text will be scrutinised by the European Parliament (EP) and the Council in the next four months.

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EU co-legislators reach a provisional political agreement on the European Climate Law

The EU Climate Law turns the EU Green Deal targets into legal obligations to reduce the greenhouse gas emissions 55% by 2050 and to reach climate neutrality.  The deal introduces elements to strengthen the European climate action framework, for example, such as a process for setting a 2040 climate target and a commitment to negative emissions after 2050. The EC will have to prepare sector-specific roadmaps on reaching climate neutrality in the European economic system. The provisional political agreement is subject to approval by the Council and EP, before going through the formal steps of the adoption procedure.

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Nathan Fabian, Chair of  Sustainable Finance Platform, comments on the EU Taxonomy developments

Nathan Fabian stated in a letter to the EC that the EU institutions should resist to political pressure made by stakeholders and Member States. Instead, the EC should stick to science-based evidence to maintain the credibility and goals of the Taxonomy Regulation itself, i.e. mitigate the effects of climate change and reduce the level of emissions.

Read his statement on the announcement of the first delegated act.

ESMA reports on enforcement of corporate disclosures

ESMA published its Annual Report on Enforcement and Regulatory Activities related to corporate reporting in the EEA. The report provides an overview of ESMA’s and European accounting enforcers’ activities that examine compliance of financial and non-financial statements of European issuers. 132 enforcement actions resulted from the inspection of non-financial statements, and the presentation and disclosure of alternative performance measures in management reports.

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Reactions on the EU Taxonomy developments

A group of stakeholders published an open letter calling on the EC to maintain the high ambition of its initial proposals in the Taxonomy to produce clean hydrogen on 31 March. WWF also wrote to the EC expressing their concerns over the forestry and bioenergy criteria in the climate mitigation taxonomy draft delegated act. Some experts of the Sustainable Finance Platform also raised concerns over the provisions on forestry, bioenergy and fossil gas in the draft climate Taxonomy Delegated Act. They believe that those are in breach of the Taxonomy Regulation and in clear contradiction to climate science.

MEPs expressed concerns over certain provisions in the EU Taxonomy

MEP Sven Giegold (Greens/EFA) reacted to the EU Taxonomy Climate Delegated Act saying that the draft does not go as far as recently feared. MEP previously expressed concerns over the labelling of certain activities in the draft delegated act of EU Taxonomy. Previously, MEPs Simona Bonafè (S&D/IT) and Paul Tang (S&D/NL) co-signed a letter to the EC expressing three main concerns over the then upcoming delegated act:

  • classification of investment in certain gas-powered heat and power plants
  • outdated criteria for bioenergy
  • inclusion of nuclear energy

EFRAG meets with international sustainability reporting setters and other related organisations

EFRAG and the EC met with ​CDP, CDSB, GRI, IFRS Foundation, SASB & IIRC, TCFD, UN Global Compact, UN Guiding Principles Reporting Framework, WICI, to define the potential collaboration of the future EU standard setter and these organisations.

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IIGCC letter to President von der Leyen and Commissioner McGuinness

In the letter, the Institutional Investors Group on Climate Change (IIGCC) recommend that the draft Delegated Regulation under the Taxonomy Regulation:

  • upholds the level of climate ambition and screening criteria recommended by the Technical Expert Group on Sustainable Finance
  • does not include in its scope natural gas without abatement, e.g. without carbon capture

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IAASB issued new guidance to help advance assurance over non-financial reporting

The IAASB issued the Non-Authoritative Guidance on Applying ISAE 3000 (Revised) to Extended External Reporting (EER) Assurance Engagements. The new guidance promotes consistent application of the standard in EER assurance engagements to:

  • strengthen the influence of such engagements on the quality of extended external reporting
  • enhance trust in the resulting assurance reports
  • increase the credibility of extended external reports so that they can be trusted and relied upon by their intended users

Tom Seidenstein, IAASB Chair, elaborates on assurance standards and the guidance in his article.

Value Balancing Alliance and World Economic Forum issued a joint statement on sustainability accounting

Value Balancing Alliance and the World Economic Forum reaffirmed the complementarity of their respective initiatives in the path to a more rigorous and harmonised system of sustainability and impact reporting and accounting. They are calling on corporations to join their projects to achieve this crucial goal.

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Brian Moynihan and Klaus Schwab sent a letter to the International Business Council

In the letter they suggest 3 steps to take in sustainability reporting for a system change:

  1. an independent standard setter should develop global ESG standards
  2. regulatory authorities should endorse standards
  3. the IFRS Foundation should build on existing main sustainability reporting initiatives

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IOSCO committed to contributing to the IFRS Foundation’s sustainability project

IOSCO announced they would be joining as observers the IFRS Foundation’s working group, which will provide technical advice on sustainability standard setting, including further refining the climate prototype standard for the sustainability standards board (SSB).

For this, IOSCO has established a technical expert group (TEG) under the Sustainable Finance Task Force. They will assess whether the refined climate prototype standard of CDP, CDSB, GRI, IIRC, SASB can become an international standard under the SSB. The TEG will be led by the Monetary Authority of Singapore and the US SEC.

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Official launch of the Export Finance for Future (E3F) coalition

The governments of Denmark, France, Germany, the Netherlands, Spain and the United Kingdom announced the Export Finance for Future (E3F) coalition. The principles of the coalition were presented during a virtual meeting chaired by French Minister for Economy Bruno Le Maire. The goal of E3F is to

  • eliminate financial export support for oil and gas projects
  • contribute to the transition towards a sustainable economic system
  • contrast the negative effects of climate change

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.