Sustainability

• EFRAG enhances its sustainability reporting pillar 
• EP Legal Affairs Committee tables over 1700 amendments on CSDDD 
• Final EU negotiations on EU green bond proposal to continue in 2023 
• ISSB close to finalising the first two standards

ESAs publish their opinions on set 1 of Draft ESRS

The three European Supervisory Authorities (ESAs) issued their respective opinions on the first set of draft ESRS delivered by EFRAG in November 2022. As per the Corporate Sustainability Reporting Directive, these ESAs are required to provide such an opinion. 

The European Securities and Markets Authority (ESMA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Banking Authority (EBA) overall supported the standards and concluded that they broadly comply with the criteria set by each of these ESA. However, all ESAs provide suggestions for improvement for the European Commission (EC) before the finalisation of the standards.

EFRAG enhances its sustainability reporting pillar 

Kerstin Lopatta was appointed Vice-Chair of the Sustainability Reporting Board (SRB). The European Investment Bank joined as an official observer in EFRAG’s both pillars as discussions continued in December 2022. 

EFRAG is also enhancing its sustainability reporting standards technical capabilities with: 

• new staff appointments 
• stakeholder communities for listed SMEs and non-listed SMEs digital reporting consultative forum 

ECON and ITRE Committees vote on reports for opinion on CSDDD 

The European Parliament‘s (EP) Economic and Monetary Affairs (ECON) and Industry, Research and Energy (ITRE) Committees adopted their opinions on the Corporate Sustainability Due Diligence Directive (CSDDD). ECON’s vote was significant since it covered the inclusion of the financial sector. This matter seems to be one of the most controversial topics in the negotiations, for which the right- and left-wing political groups shared an opposing view.  

EP Legal Affairs Committee tables over 1700 amendments on CSDDD

The EP’s Legal Affairs (JURI) Committee tabled their amendments (AMs) to MEP Lara Wolters’ (S&D/Netherlands) draft report on the CSDDD. MEPs had divergent views on several aspects, to name a few: 

• scope: several MEPs would like to see fewer companies under the CSDDD, proposing 3000 employees as a threshold, while many others suggest a lower threshold to capture even more companies 
• directors’ duties and responsibilities: while some MEPs are in favour of Directors having a more active role in setting up and overseeing the implementation of due diligence rules, others suggested deleting Articles 25 and 26 provisions all together 
• financial sector: certain MEPs proposed AMs to exclude the financial sector from the CSDDD scope due to its specificities, while many others advocated for the sector’s inclusion 
• third-party verification: several MEPs supported the opening of the market to all verification providers, and some others further suggested adopting a delegated act setting minimum standards for verification 

JURI Committee is expected to vote on the CSDDD in March.

Final EU negotiations on EU green bond proposal to continue in 2023

The EP and Council met for the fourth time to negotiate the EU green bond standard proposal on 14 December 2022. They did not reach a provisional political agreement due to divergent views on transparency requirements and flexibility pocket, among other matters, as mentioned by rapporteur MEP Paul Tang (S&D/Netherlands). The negotiations are expected to continue under the Swedish Presidency.  

EC FAQs on EU Taxonomy

The European Commission (EC) issued two sets of FAQs to help companies: 

• apply climate technical screening criteria set out in the Taxonomy Climate Delegated Act by providing technical clarifications  
• deal with reporting obligations on their environmental performance by clarifying the provisions in the Taxonomy Disclosures Delegated Act 

EBA publishes its roadmap on sustainable finance

The European Banking Authority (EBA) outlined its objectives and timeline to deliver on sustainable finance. The roadmap covers eight areas: 

• transparency and disclosures 
• risk management and supervision 
• prudential treatment of exposures 
• stress-testing 
• standards and labels 
• greenwashing 
• supervisory reporting 
• environmental, social and governance risks and sustainable finance monitoring 

SMSG provides advice on greenwashing

ESMA’s Securities and Markets Stakeholder Group (SMSG) submitted its advice to ESMA on the European Supervisory Authorities’ (ESAs) Call for Evidence on greenwashing. SMSG advises, among other things, to clarify concepts and terminology and identify gaps in the current regulatory framework to fight greenwashing in the financial sector. 

ISSB close to finalising the first two standards 

The International Sustainability Standards Board (ISSB) met in December to redeliberate some of the proposals in the first two reporting standards. Amongst other decisions, they tentatively decided to: 

• describe the concept of sustainability and its articulation with financial value creation 
• advance work on natural ecosystems and just transition 
• issue guidance and reliefs to support Scope 3 GHG emission disclosures 

The ISSB aims to make the final decisions on these two standards by their meeting in February. 

IFRS Foundation strengthens its sustainability standard setting capabilities 

The IFRS Foundation appointed new Trustees members with a broad range of accounting and sustainability expertise. Steven Maijoor, former Chair of ESMA, is one of the newly appointed Trustees. 

The IFRS Foundation established an ISSB presence in Beijing following a Memorandum of Understanding with the Ministry of Finance of China. The ISSB continued engaging with Global South jurisdictions to advance adopting IFRS Sustainability Disclosure Standards. 

The Sustainability Standards Advisory Forum (SSAF) was formed to provide the ISSB with technical advice to contribute to the ISSB’s standard-setting work development. SSAF has thirteen inaugural members representing jurisdictions and regions from around the world. The European Union is represented in the SSAF, whereas the EC serves as an official observer. 

UK focuses on sustainability reporting 

The UK Financial Reporting Council announced its areas of supervisory focus for 2023-2024. These include TCFD-based reporting and how adequately companies’ net-zero commitments have been addressed in financial statements. 

The UK Endorsement Board published its draft 2023/2024 Regulatory Strategy for consultation. They expect to undertake some projects related to the ISSB. As a result, all ISSB projects have been classified as “significant”.