Sustainability reporting: EFRAG and ISSB finalise governance structures, and first public consultations are launched
Keywords: Mazars, Thailand, Sustainability, Sustainability Reporting,EFRAG, ISSB, PTF-ESRS, GRI, SEC, TCFD, GHG, ESRS
26 May 2022
Governance
At the European level, EFRAG has finalised the composition of its Sustainability Reporting (SR) Board, in line with its commitment to reform its governance structure to reflect its new sustainability reporting responsibilities. The new SR Board members were officially appointed at the General Assembly on 15 March. The Chair of the Board is to be appointed in the coming weeks, with Jean-Paul Gauzès filling the post in the interim and chairing the first meeting on 31 March 2022. Two further meetings are scheduled for 7 and 22 April, at which the SR Board will:
- appoint the members of the new Sustainability Reporting Technical Expert Group (SR TEG). The public call for candidates closed at the end of February and the selection process is now in progress, under the supervision of the Nominating Committee. This will allow the SR TEG to begin its work as soon as possible (by mid-April);
- approve the launch of the public consultation on the exposure drafts that are currently being finalised by the PTF-ESRS (which will hold its last plenary meeting – and first in-person meeting! – on 25 April). The consultation process is set out in the new Sustainability Due Process Procedures, which were approved by the General Assembly on 15 March (available here).
Still on the governance side, but at the international level, the ISSB announced in February that it would be appointing Board members in a two-stage process. This was followed on 24 March by the announcement that it had signed a Memorandum of Understanding with the Global Reporting Initiative (GRI). Each of the organisations will be represented on the other’s consultative body, and the collaboration will ensure the compatibility and interconnectedness of baseline sustainability information that meets the needs of investors while also maintaining relevance for a wider range of stakeholders. It is likely to involve coordinating their respective work programmes and, where possible, aligning their terminology, definitions and guidelines.
At a practical level, the ISSB officially established its presence in Frankfurt, Germany, on 2 March. It will have a global presence via offices in different locations, but Frankfurt will be its head office and the ISSB Chair, Emmanuel Faber, will be based there. The Frankfurt office will also serve as a hub for the Europe, Middle East and Africa region.
Technical matters
On the technical side, March saw the launch of several major consultations.
The Americans were first into bat, with the Securities and Exchange Commission (SEC) publishing a proposed rule on 21 March. It would require all companies listed on US markets to publish information on climate-related risks in their annual reports and registration documents. The proposed rule is based heavily on the framework developed by the Task Force on Climate-Related Financial Disclosures (TCFD) and on the Greenhouse Gas (GHG) Protocol. It would require entities to disclose how they have taken account of climate-related risks and their impacts in their business strategy, governance and risk management system; the actual or potential impacts on their financial performance and ability to continue as a going concern; and their Scopes 1, 2 and 3 greenhouse gas emissions (direct and indirect).
The consultation period is open for two months, after which the SEC will make any necessary revisions before submitting the proposed rule to Congress. The current plan is that the proposed rule would be implemented in several stages, with the compliance date depending on the type of company (large accelerated filers, accelerated filers and non-accelerated filers) and the type of information required. Thus, if the proposed rule came into effect in December 2022 and the entity’s reporting period was the same as the calendar year, the compliance date for disclosures in annual reports (except for Scope 3 disclosures) would be 2023 (filed in 2024) for large accelerated filers.
Next up was the ISSB, which launched a public consultation on its first two exposure drafts on 31 March, having published the prototypes (prepared by the Technical Readiness Working Group) at the end of 2021:
- the first ED, IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (available here), sets out the general principles for disclosing sustainability information under the IFRS and ISSB framework, including what to do when there is no standard yet published on a particular topic;
- the second ED, IFRS S2 Climate-related Disclosures (available here), specifies the disclosures to be provided on climate-related risks. These proposals also build on the TCFD’s recommendations, as well as incorporating the Sustainability Accounting Standards Board (SASB) industry-based standards development approach.
The comment period is open for 120 days and closes on 29 July, and the ISSB plans to publish the final standards by the end of the year. The ISSB will launch a second consultation, on its work plan, later this year. Beyond the GAAP will return to the two exposure drafts in more detail in a future edition.
Meanwhile, EFRAG is also keeping busy. Although the public consultation will not open until the very end of April (closing on 31 July 2022), the Brussels-based institution has published its latest working papers, which will serve as the basis for the exposure drafts to be published for consultation. These include:
- ESRS 1 General Provisions, which will cover the broad principles of sustainability disclosures (available here);
- the last of the four environmental standards, ESRS E4 on biodiversity and ecosystems (available here);
- all seven of the standards relating to social issues. Four of these relate to the rights of the entity’s own workforce:
The three other standards focus on the rights of other people who are potentially affected by the entity’s activities:
- ESRS S5 (available here) deals with the rights of workers in the value chain;
- ESRS S6 (available here) addresses the rights of communities that have no business connection with the entity but that could be impacted by its activities; and
- ESRS S7 (available here) deals with the rights and protection of consumers and end users of the entity’s products or services.
- the three standards relating to governance:
- ESRS G1 (available here) deals with governance, risk management and internal control. This standard covers cross-cutting topics that apply to the company as a whole and all its activities, rather than governance, risk management and internal control as they relate to sustainability matters, which are covered in ESRS 2 and ESRS 3;
- ESRS G2 (available here) tackles governance matters relating to the entity’s products and services, as well as the management and quality of relationships with business partners; and
- ESRS G3 (available here) covers ethical business conduct.
- ESRS P1 (available here), which sets out where and how to present the information required by the other ESRS standards in the management report.
The table below presents the overall framework developed by the PTF-ESRS, showing the working papers published in the first quarter of 2022 (blue for those published in January, green for February and grey for March).
