Sustainability

• EP votes to approve CSRD political agreement 
• MEP Laura Wolters publishes CSDDD draft report 
• ESAs joint call for evidence on greenwashing 
• ISSB progress on sustainability reporting standards

EFRAG SRB delivers draft ESRS to the EC

The EFRAG Sustainability Reporting Board (SRB) delivered the first set of draft European Sustainability Reporting Standards (ESRS) in their Technical Advice to the European Commission (EC). The Technical Advice also includes CEPS-Milieu’s assessment on the ESRS costs and benefits. Accountancy Europe welcomed this important achievement in a public statement. In parallel, EFRAG is calling on their Community Sector Groups to participate in the sector-specific workshops. 

EFRAG SRB Chair announced

EFRAG announced Patrick de Cambourg as the incoming SRB Chair and welcomed three new members to the Board. Accountancy Europe warmly congratulated Patrick de Cambourg.

EP votes to approve CSRD political agreement

The European Parliament (EP) adopted the Corporate Sustainability Reporting Directive (CSRD) with 525 votes in favour, 60 votes against and 28 abstentions on 10 November.  

The Council is expected to adopt the proposal on 28 November, after which the text will be signed and published in the EU Official Journal. The CSRD will come into force 20 days after its publication.

MEP Lara Wolters publishes CSDDD draft report 

MEP Lara Wolters (S&D/Netherlands), rapporteur on the Corporate Sustainability Due Diligence Directive (CSDDD), issued her draft report on the new legislation. Regarding verification and audit, no major changes were introduced. MEP Wolters replaced the word ‘auditor’ with ‘entity’ in the definition of ‘independent third-party verification’ to specify that the market would be open. Other amendments include the following: 

• a wider scope of entities than in the original proposal and inclusion of the entire value chain 
• deletion of the concept of an ‘established business relationship’ and introduction of risk prioritization 
• a more meaningful inclusion of stakeholders’ consultation throughout the due diligence process 
• a more active role of the Board in aligning with the transition to a sustainable economy 

Outcome of climate change talks at COP27

EU agrees to COP27 compromise to keep Paris Agreement alive and protect the most vulnerable to climate change by putting in place new funding arrangements. The EP official delegation’s Chair Bas Eickhout stated that the European Union (EU) had to fight to maintain last year’s level of ambition, but showed leadership on ‘loss and damage’ fund. MEPs highlighted there is still room for action and applauded the renewed cooperation between the United States (US) and China.

ESAs joint call for evidence on greenwashing

The three European Supervisory Authorities (ESAs) are gathering input from key stakeholders. The aim is to assess how they understand the key features, drivers and risks associated with greenwashing and collecting examples of potential greenwashing practices. This follows the EC request for input on several aspects of greenwashing and related risks, as well as supervision and enforcement of sustainable finance policies. 

Stakeholders can provide their response by 10 January 2023.

Update on ESAs joint activities

ESAs published Questions and answers on the Sustainable Finance Disclosure Regulation (SFDR) delegated regulation. 

In their letter to the EC, ESAs communicated that they would not be able to meet the original deadline of 28 April 2023 to review the indicators of principle adverse impacts of the SFDR. Therefore, they notified a delay of up to 6 months for this mandate.

ESMA’s common enforcement priorities for 2022 annual reports

The European Securities and Markets Authority (ESMA) issued its annual public statement setting out the European common enforcement priorities for the 2022 annual financial reports of issuers admitted to trading on European Economic Area (EEA) regulated markets. Priorities related to non-financial statements are:  

• climate-related matters 
• taxonomy-related disclosures 
• reporting scope and data quality 

Read more 

EBA updates on its upcoming activities and priorities

In their work programme for 2023, the European Banking Authority (EBA) identifies transition risks as one of the key topics, with digital transformation and ESG factors and risks as focus areas. The main conclusions are: 

• transition to a sustainable and digitalised economy will require large investments  
• institutions should be able to identify ESG risks and properly reflect them in their risk appetite  
• competent authorities should keep working on reflecting ESG risks in their business strategies, governance and risk management processes 

This aligns with the statement issued by the EBA during the COP27, highlighting sustainability in the banking sector, EBA’s work priorities and its organisation.  

ISSB progress on sustainability reporting standards

The International Sustainability Standards Board (ISSB) continues redeliberating the first two sustainability reporting standards. The ISSB tentatively decided to remove the “enterprise value” references and use the exact materiality definition as the one in IFRS Accounting standards in their October meeting. In addition, the ISSB confirmed the requirement to use climate-related scenario analysis. The ISSB agreed to require companies to consider SASB standards when identifying sustainability matters and developing appropriate disclosures. For more decisions on these two standards, refer to the ISSB November meeting summary. 

The IFRS Foundation announced the membership of the new advisory group – the Integrated Reporting and Connectivity Council (IRCC). The IRCC will provide guidance on how reporting required by the IASB and the ISSB could be integrated and how these boards could consider applying principles and concepts from the Integrated Reporting Framework.

ISSB key announcements at COP27

The ISSB announced at COP27: 

• the establishment of a Partnership Framework to support stakeholders as they prepare to use IFRS Sustainability Disclosure Standards 
• advancements of cooperation with jurisdictions, including agreeing on a framework for maximising interoperability between ESRS and IFRS sustainability standards 
• the incorporation of IFRS S2 Climate-related disclosures requirements in the CDP platform

The Financial Reporting Council of Nigeria announced at COP27 that they will move to adopt the ISSB standards in Nigeria when they are issued in 2023. 

IESBA considerations in sustainability reporting

International Ethics Standards Board for Accountants (IESBA) issued Questions and answers to provide guidance to address concerns about greenwashing. The publication intends to highlight the relevance and applicability of the International Code of Ethics for Professional Accountants, including International Independence Standards, to several ethics-related challenges. The guidance may be used by professional accountants and other professionals involved in sustainability reporting and assurance. 

IPSASB seeks comments on sustainability reporting implementation guidance proposals

The International Public Sector Accountants Board (IPSASB) issued a new Exposure Draft (ED) to show how governments and public sector entities can apply their Recommended Practice Guidelines (RPG 1 and RPG 3) to report on sustainability program information.
The ED proposes non-authoritative additional implementation guidance, along with Illustrative examples, on key topics such as: 

• green bonds 
• carbon taxes 
• tax expenditures, and 
• other programs developed to mitigate the effects of climate change and achieve the UN’s Sustainable Development Goals 

Stakeholders can submit their comments by 16 January 2023. 

The IPSF issues two new reports

The International Platform on Sustainable Finance (IPSF) published its Annual Report 2022, summarising its activities. The Platform focused on its Common Ground Taxonomy and on transition finance. The report also updates on the key policy developments of the 18 jurisdictions in which the IPSF is active, including the EU. 

The Platform has also issued a more specific report on transition finance. It focuses on the transition from today’s GHG emissions to levels commensurate with meeting the temperature goals of the Paris Agreements. The report proposes a set of voluntary ‘Transition Finance Principles’ to stimulate thinking on useful common approaches within transition finance frameworks and tools. 

ICAEW’s good practice guideline on ESG considerations in the context of M&A

The document provides practical guidance on the role of ESG considerations across the mergers and acquisitions (M&A) lifecycle. It explores the integration of ESG into the M&A process and how it can contribute to identifying and quantifying its value and impact potential.  
The guideline has been published by ICAEW’s Corporate Finance Faculty, authored by Deloitte and peer-reviewed by other firms and experts in this area.