December 2021

  • Institutional debate on the CSRD proposal progresses
  • Sustainable Corporate Governance initiative postponed again
  • EU Taxonomy Climate Delegated Act passes a scrutiny period
  • International Platform on Sustainable Finance launches its reports at COP 26

Accountancy Europe statement on sustainability standard setting following Commissioner McGuinness remarks at COP26

The Commissioner’s speech at COP26 focused on progress made by the EU on sustainability reporting with a special focus on the Corporate Sustainability Reporting Directive (CSRD) and EFRAG’s preliminary work to develop standards that use a double-materiality perspective.

Commissioner McGuinness welcomed the IFRS’s Foundation initiative to develop a common global baseline on sustainability reporting. She also emphasised that global standards should be a common floor and not a ceiling that limits those who want to go further and faster. To this end, a two-way cooperation between global and regional standard setters is critical.

Accountancy Europe welcomed these remarks and echoed the need for the EU to build on what already exist as well as the importance of a two-way cooperation.

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Institutional debate on the CSRD proposal progresses

MEP Pascal Durand (Renew Europe/France), who is leading on the file, presented his draft report on the CSRD proposal to the European Parliament (EP) Legal Affairs Committee on 1 December. The rapporteur is proposing to amend certain aspects of the European Commission’s (EC) proposal, to note a few:

  • prohibit the statutory auditor from providing assurance on sustainability information
  • expand the scope to non-EU companies and medium-sized companies operating in high-risk sectors
  • postpone reporting requirements by one year
  • remove subsidiaries’ exemption
  • open assurance market to other service providers who should comply with equivalent requirements to those set out in the Audit Directive

Amendments will be considered mid-January 2022. The Legal Affairs Committee is expected to reach a position in March 2022 and enter trilogues in April 2022.

Slovenian Presidency progress report on the CSRD debate

The Slovenian Presidency presented the report at Competitiveness Council in November. In the report, the following matters were considered as the main political issues:

  • the criteria used for inclusion in the scope, especially when it comes to financial undertakings
  • the definition of intangibles and respective reporting requirements
  • legal certainty regarding the exact content of the reporting obligations and the EC’s empowerment to adopt sustainability reporting standards
  • deadline for transposition and start of reporting requirements application was deemed too ambitious
  • clarity on requirements for independent assurance services providers and assurance standards

The Presidency presented the compromise text for initial exchange of views at the Council Company Law WP meeting on 8 December. The Council is expected to reach a general approach by the end of February/March 2022.

EFRAG’s feedback summary on due process for EU sustainability reporting standard-setting

Following comments received to the Consultation on the Due Process Procedures for EU sustainability reporting standard-setting, EFRAG issued a feedback summary.

The main observations of the reports are:

  • EFRAG should provide for more transparency in the interim phase
  • EFRAG Project Task Force on EU sustainability standard setting should transition the work to the EFRAG’s new sustainability reporting pillar
  • the due process of the financial reporting pillar should remain unchanged
  • collaboration with international initiatives should be enhanced

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EFRAG’s work on EU sustainability reporting standards

EFRAG’s Project Task Force on EU sustainability reporting standards issued their status report on the progress towards developing EU sustainability reporting standards (ESRS). Earlier in November, EFRAG announced the establishment of 11 Expert Working Groups (EWGs) on sustainability matters that will provide input for the development of draft ESRS. The EWGs will start their work as soon as the respective materials are available. EFRAG is also looking for new members to join its sustainability reporting pillar in view of its new role as the future EU sustainability reporting standard setter. The deadline for application for EFRAG membership was 8 December 2021.

Sustainable Corporate Governance initiative postponed again

According to our information, the EC regulatory scrutiny board has once again rejected the EC sustainable corporate governance proposal. The directive was planned for adoption on 8 December. The new date has now been set for 30 March 2022. The legislative proposals are expected to include environmental and social supply chain due diligence and directors’ duties to integrate mandatory sustainability criteria into their decision-making.

Institutional debate on the EU green bond standard proposal

MEP Paul Tang (S&D/Netherlands), who is leading on the EU green bond standard file, published a draft report on the proposal. The rapporteur notes four key principles: 1) introduce a transition plan for every issuer; 2) ensure equal requirements for European green bonds and other sustainable bonds; 3) ensure independence of external verifiers; 4) create a deep and liquid market.

The Economic and Monetary Affairs committee is expected to reach a position by early April 2022.

EU Taxonomy Climate Delegated Act passes a scrutiny period 

In June, the EC issued the EU Taxonomy Climate Delegated (DA) that was subject to co-legislators’ scrutiny over the period of four months. The Council extended its scrutiny period for two additional months until 8 December but has now cleared the Climate DA. The DA specifies the criteria for economic activities to qualify as contributing substantially to climate change mitigation and adaption, and whether they cause significant harm to other environmental objectives. The DA rules will apply as from 1 January 2022.

ESMA Chair Verena Ross keynote speech on ESG reporting, risk management and strategy and responsibility

In her speech at the DSW (association representing private investors) conference, the Chair noted that the European Securities and Markets Authority (ESMA) is preparing an ambitious and comprehensive programme on sustainable finance in which greenwashing will be tackled too. ESMA is actively monitoring developments on sustainability reporting standard setting. The Chair noted that it is important to ensure that the European and the global standards are inter-operable to ensure helpful disclosures to investors.

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ESMA contributes to a sustainable financial system

In its communication, ESMA highlighted its work on sustainable finance and commitment to deliver on the UN COP 26 objectives to fight climate change by setting out concrete actions, among which:

  • continuous support and participation in the IOSCO’s Sustainable Finance Task Force work
  • preparation for possible supervisory responsibilities arising from the EU Green Bond Standard legislative proposal
  • contribution to the development of sustainability reporting standards and fostering common supervisory approaches in the area

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IFAC’s vision for high-quality sustainability assurance

IFAC issued a statement addressing the importance of global standards and regulation. The statement supports “decision-useful disclosure and the value of interconnected approach to sustainability and financial information reporting and assurance”.

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International Platform on Sustainable Finance launches its reports at COP 26

The International Platform on Sustainable Finance (IPSF) and the EC organised an annual IPSF event as part of COP26. IPSF presented three reports:

  • a common ground Taxonomy (CGT) putting forward areas of communality between the EU and China Taxonomies. The CGT focuses on climate change mitigation activities
  • state and trends of ESG disclosure setting out policy measures across IPSF jurisdictions, Brazil and the US. The report provides an overview of ESG disclosures related policy measures and recommendations and guidelines. The report focuses not only on climate but also covers broader aspect of sustainability disclosures
  • annual report giving an overview of the IPSF work

FRC’s fact sheet: Climate-related matters

The UK Financial Reporting Council (FRC) published a staff factsheet which emphasizes the need for preparers to consider the impact of climate-related matters on the financial statements and narrative reporting.

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.