Reassessing European and international sustainable reporting standards

The jury is still out on how big a knife will be taken to Europe’s landmark sustainable reporting standards but revisions to the International Sustainability Standards Board’s (ISSB) requirements will be minor.

ISSB member Veronika Pountcheva said it was taking a “proactive approach” to feedback on its first two reporting standards. The board, which is housed within the International Financial Reporting Standards (IFRS) Foundation, produced its first standards — IFRS S1, a general standard, and IFRS S2 on climate — in June 2023.

Taking effect from January 2023, both S1 and S2 have been adopted by 20 countries and are under consideration by several more. In February, ISSB chair Emmanuel Faber said countries progressing towards their adoption accounted for 60% of global gross domestic product (GDP).

Speaking at the Association for Financial Markets in Europe (AFME) Sustainability Conference, Pountcheva said that after listening to feedback from its transition implementation group, the ISSB was proposing a relief for insurers in relation to certain emissions. It was also considering several amendments to address implementation challenges, after concluding that reformulation of Scope 3 category 15 greenhouse gas emissions was needed.

Interoperability

Pountcheva was optimistic about increasing the interoperability of ISSB and other sustainability standards, including the European Sustainability Reporting Standards (ESRS).

Sven Gentner, head of unit for corporate reporting and audit at the European Commission’s directorate-general for financial stability, financial services, and capital markets union (DG FISMA), said a lot of work had been done to map the ESRS to the ISSB, and work was ongoing to align technical language used in both sets of standards.

However, it was important to note the difference in their intentions: the ISSB was designed to provide a global baseline of comparable financially material sustainability data, while the ESRS was always more extensive and required reporting of both financial and real-world impact.

Not everyone agreed about the interoperability of the two. Andrew van Haght, global head of sustainability reporting at Olam Food Ingredients, said multiple reporting frameworks added to complexity for multinational companies.

It was “pretty frustrating” that the various standard setters seemed focused on “being number one” and were “forgetting the purpose” of the standards in the first place, said van Haght, during a panel discussion on the future of reporting standards in Amsterdam on May 21.

ESRS revision

Gentner said the European Commission was working with the European Financial Reporting Advisory Group (EFRAG) on revising the ESRS and would consult in the summer with the aim of having the final version ready by October.

An adjustment to the ESRS was necessary because current economic and geopolitical conditions meant “we really need to reduce the burden” on European companies, Gentner said, but the intention was to “remain true to our overall goals”.

The review was a central part of the EU ‘omnibusʼ announcement in February. Those proposals will lift 80% of European corporates out of scope of the Corporate Sustainability Reporting Directive (CSRD). Meanwhile, commission president Ursula von der Leyen has promised a 25% reduction in the sustainability reporting burden for remaining firms.

The Institute of Chartered Accountants in England and Wales (ICAEW) has 6,500 members that are located in the European Economic Area (EEA) and potentially subject to ESRS. Last week it called for the ESRS to be significantly revised to fully align with ISSB standards.

“We believe that full alignment with ISSB standards would have numerous benefits,” said Nigel Sleigh-Johnson, ICAEW’s head of corporate reporting, audit and assurance. “It would remove duplication of effort in standard-setting and allow EFRAG time to focus on addressing the most challenging provisions, including the application of double materiality.

“It would also enable high-quality standards to be developed at speed, without placing an undue burden on in-scope companies, thereby supporting the competitiveness and attractiveness of businesses operating in the EU.”