July 2022

  • EU legislators reach agreement on the CSRD
  • MEPs object to the EC’s Complimentary Delegated Act
  • Council agrees its position on ESAP
  • IAASB Quarterly Board Meeting tackles sustainability assurance

EU legislators reach agreement on the CSRD

On 21 June, the Council and the European Parliament (EP) reached a political agreement on the Corporate Sustainability Reporting Directive (CSRD).

In the press conference held the day after, rapporteur Pascal Durand (Renew Europe/France) and Commissioner McGuinness presented the outcome of the CSRD final negotiations. Commissioner McGuinness highlighted that this agreement is  a major step as financial and sustainability information would be put on an equal footing for the first time in the EU and beyond. As she mentioned, it is key  that sustainability reporting standards must be verified.

On 29 June, the EU ambassadors approved the political agreement. The EP Legal Affairs (JURI) Committee is expected to vote on the provisional agreement on 14 July.

In short, some of the main changes the agreement brings:

  • scope enlarged to all large and all listed companies (250+ employees); non-EU companies (150 million EUR net turnover)
  • gradual approach to reporting:
    • first reports are expected in 2025 (for financial year 2024) by companies covered by the NFRD
    • other large listed and non-listed companies will report in 2026 (for financial year 2025)
    • listed small and medium-sized enterprises (SMEs) in 2027 (for financial year 2026), but SMEs can ‘opt-out’ from reporting requirements for a two-year transitional period
  • non-EU companies will be expected to issue first reports in 2029 for the financial year starting 1 January 2028
  • the European Commission (EC) shall adopt the first set of standards by 30 June 2023; second set and sector specific standards as well as SMEs – by 30 June 2024
  • the statutory auditor, another auditor or an independent assurance service provider (IASP) can conduct an assurance engagement
  • shareholders (5% of their votes) can ask for an accredited third party – that does not belong to the same audit firm or network as the statutory auditor – to verify certain elements of sustainability reporting
  • IASPs will be provided with a passporting regime to provide their services cross border (in those MS that opted to allow IASP to provide assurance services)

EFRAG continues outreach on ESRS Exposure Drafts

In June, the European Financial Reporting Advisory Group (EFRAG) continued with its outreach campaign holding a total of 7 geographical outreach events and 3 educational sessions. These were held jointly with stakeholders and financial institutions from France, Germany, the Netherlands, Denmark, the Nordic countries, Austria, Poland. Outreach will continue until mid-July with eight more events scheduled. The recordings of the sessions are available on EFRAG’s website.

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EFRAG’s role confirmed as technical advisor to the EC on sustainability repoting

With the EU co-legislators reaching  a political agreement on the CSRD proposal,  EFRAG became officially the  technical advisor in sustainability reporting to the EC. EFRAG published a statement welcoming the confirmation of its role.

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MEPs object to the EC’s Complimentary Delegated Act

The EP’s Committee on Economic and Monetary Affairs (ECON) and the Environment, Public Health and Food Safety (ENVI) Committee held a joint vote on a motion for resolution objecting to the EC’s complementary Delegated Act (DA). The DA proposes including nuclear energy and fossil gas in the EU Taxonomy as transitional activities. MEPs objected with 76 votes in favour, 62 against and 4 abstentions. Plenary vote on the resolution is scheduled on 6 July. The EP and Council have until 11 July to veto the DA.

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Council agrees its position on ESAP

The Council has agreed its position on the European Single Access Point (ESAP) proposal. The proposal aims to improve public access to entities’ financial and non-financial information.

ESAP platform will contain already established types of data, as well as publicly available information, including:

  • (consolidated) annual financial statements
  • (consolidated) management reports
  • audit reports
  • reports on payments to governments

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ESMA establishes a Consultative Working Group on sustainable finance

The European Securities and Markets Authority’s (ESMA) Consultative Working Group (WG) on sustainable finance consists of 26 members selected for a two-year renewable term. The WG was established under the Coordination Network on sustainability with a mandate to:

  • promote the coordination of regulatory, supervisory and enforcement initiatives across securities regulators in the EU and across ESMA activities in sustainable finance
  • contribute to all ESMA’s work on sustainable finance matters, in relation to incorporation of the Environmental, Social, and Governance (ESG) factors in the investment advice and disclosure requirements
  • indicate any potential threats that are relevant to ESMA’s objectives of ensuring investor protection, orderly functioning and integrity of financial/commodity markets and to stability, to the relevant Standing Committee

ESMA presents its finding on ESG ratings

ESMA published a letter to the EC presenting its findings from the call for evidence on ESG ratings to gather information on the market structure for ESG ratings providers in the EU. ESMA identified 59 ESG rating providers currently active in the EU. The findings indicate:

  • there is a small number of very large non-EU providers, and many significantly smaller EU entities
  • ESG ratings users are typically contracting for these products on an investor-pays basis from several providers simultaneously
  • entities covered by ESG ratings dedicate at least some level of resourcing to their interactions with ESG rating providers

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EBF position paper on the CSDDD

The European Banking Federation (EBF) published its views on the Corporate Sustainability Due Diligence Directive (CSDDD) asking for more clarity on:

  • obligations and definitions, e.g., established business relationships
  • consistency with Taxonomy Regulation, Sustainable Finance Disclosure Regulation (SFDR) and CSRD
  • directors’ duties

They also oppose the inclusion of civil liability.

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IAASB Quarterly Board Meeting tackles sustainability assurance

In its June meeting, the International Auditing and Assurance Standards Board (IAASB) decided to develop a sustainability assurance standard based on ISAE 3000, covering both limited and reasonable assurance.

The IAASB agreed on preparing  a project proposal draft by the end of 2022 and issuing  an Exposure Draft by the second half of 2023.

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ISSB advances its work on sustainability reporting standards

The International Sustainability Standards Board (ISSB) is now able to operate and reach decisions as it reaches quorum with its two new board members appointments: Jeffrey Hales and Michael Jantzi. The remaining 6 members are expected to be appointed during the third quarter of 2022.

The International Financial Reporting Standards (IFRS) Foundation and the Global Reporting Initiative (GRI) provided an update on the development of their memorandum of understanding (MoU) announced in March. They agreed on carrying out joint mapping and comparison exercises as well as developing a methodology to cross-reference between the ISSB and GRI standards.

The IFRS Foundation Trustees voted the approval of the consolidation with the Value Reporting Foundation (VRF) as from 1 July 2022. However, the consolidation is delayed and is now expected to be completed by 1 August (originally 1 July).

Practical toolkits for smaller businesses working towards a sustainable future

The Association of Chartered Certified Accountants (ACCA) and the business management consultancy Profit Impact published free toolkits that offer concise practical ways for micro, small and medium enterprises to start their sustainability journey. The toolkits cover:

  • supply chain code of conduct
  • demystifying environment systems for small and medium‐sized practices (SMPs)
  • mapping your business goals to the relevant United Nations (UN) Sustainable Development Goals (SDGs)

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.