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Sustainability reporting – Opportunity to be heard

Financial Reporting Brief June 2022

A busy summer lies ahead for those keen to make an impact on the future of sustainability reporting.

Both the International Sustainability Standards Board (ISSB) and the European Financial Reporting Advisory Group (EFRAG) have made rapid progress in developing their frameworks and structures. So much so that both have already published consultation drafts of sustainability reporting standards. They are now open for consultation from interested parties, with closing dates of 29th July and 8th August respectively.

This is an excellent opportunity to become involved in the initial consultation drafts which will play a large part in the future shape of sustainability reporting. Implementation of the standards will be a major challenge to entities in the coming years. Becoming involved now on matters that are important to you will give you a voice in developments, and every voice should make some difference to reaching standards that work. No doubt, other opportunities will arise in the future but perhaps none with as much potential ability to have an influence on developments as they get up and running.

With regard to both sets of drafts, there is a very challenging timescale for development with, for example, a commitment for the European Sustainability Reporting Standards (ESRS) to be submitted to the European Commission (EC) in final draft form in November 2022. Given the length of time normally taken to bring financial reporting standards through the process, the achievement of the November target is ambitious and needs all shoulders to the wheel with the submission of comments on or before the due dates being an essential part of the process.

The recent letter from Accountancy Europe to the appropriate European Commissioner provides some important comments that it considers need to be addressed in order for the ESRS to be a successful tool for the EU and its ambitious plan to turn Europe into the first climate neutral continent by 2050. Concerns are expressed in a number of areas including that the ESRS, as currently drafted, may be too complex or burdensome which may generate unhelpful pushback and slow down adoption. The letter comments in conclusion that the proposed ESRS might need to follow an iterative process of improvement at an early stage to ensure they facilitate meeting the European Green Deal objectives, as well as align with the upcoming international sustainability reporting standards.

There will be many similar voices heard in relation to both sets of drafts, but the pressures brought to bear by the investment community in particular leave it less than likely that there will be a consent to any significant protraction of the process. Still more reason for optimising the consultation process in an effective and thorough manner, and that calls on all interested parties to commit time and resources between now and the closing dates for comment.


European Developments

In our April Financial Reporting Brief (FRB), ‘Uncertain Times: Europe Leads Progress to Sustainability Reporting’, we commented on the work being carried out by EFRAG in the development of ESRS, with the publication of a complete set of ‘working papers’ in the early months of 2022. The FRB also commented on the climate-related proposals, giving a clear indication of the level of detailed disclosure proposed. Since then, on 30th April, EFRAG moved forward to consultation drafts of ESRS being published.

The EFRAG Sustainability Reporting Board and its Technical Experts Group will consider the exposure drafts in parallel with the public consultation. Together with the input and results from the public consultation, they will agree the final set of draft ESRS to be submitted to the EC in November 2022.

The primary purpose of the standards is to specify the new sustainability reporting requirements of the EU Corporate Sustainability Reporting Directive (CSRD). The draft CSRD was published in April 2021 and, although there has been some pushback in timing, it is scheduled to be approved by the EC by 31 December 2022 with Member State adoption thereafter.

It will be interesting to see how the European timetable fits with that of the ISSB which has as its primary objective to establish a global baseline of standards to respond in a compatible manner to the needs of global market participants while optimising reporting efficiency on a regional and jurisdictional basis. EFRAG is a member of a global working group comprised of several jurisdictions with compatibility on a global basis being the overall objective.


ISSB Global Baseline

The ISSB has gotten off to a running start following its launch at COP26, just seven months ago. The global baseline builds upon, incorporates and protects the heritage of the existing investor-focused sustainability disclosure standards, including those of the Task Force on Climate-related Financial Disclosures (TCFD), the Climate Disclosure Standards Board (CDSB), SASB Standards, Integrated Reporting and the World Economic Forum’s metrics.

Already, the ISSB has published on 31st March the consultation drafts of its first two standards – ‘General Requirements for Disclosure of Sustainability-related Financial Information’ and ‘Climate-related Disclosures’. These build on the prototypes published in November 2021 by the Technical Readiness Working Group, which was set up in March 2021 to lay the ground – see our January FRB ‘Sustainability Reporting – A Path Forward’.

The ambition of the ISSB is to complete, by the end of 2022, the necessary institutional and technical standard-setting work necessary to establishing the core elements of the global baseline, taking account of the ongoing consultation process. Implementation of the global baseline will then require action by others, including public authorities and market participants, to contribute towards the development of the global baseline and to require or encourage its widespread use.


ISSB General Disclosures

We commented in our April FRB on the EFRAG ‘working paper’ on Climate-related Disclosures. This gave some indication of what is in mind in this area of sustainability reporting and, in principle, is unlikely to differ much to the ISSB draft standard.

Our focus is therefore on the general disclosure requirements draft standard. The objective of that is to provide information about the significant sustainability-related risks and opportunities to which the reporting entity is exposed. In doing that, it aims to provide users of general purpose information with the disclosures useful in deciding whether to provide resources to the entity.

Disclosures provided should include those about governance, strategy, risk management, metrics and targets and they should ensure that they are relevant and faithfully represent what they purport to represent. They must enable users of the information to understand the connections between the different sustainability-related risks and opportunities and how these are linked to general purpose financial reporting information.

An entity would disclose all information on sustainability matters that is material for investors and other providers of capital in respect of a reporting entity. Sustainability-related financial information is considered material if omitting, misstating or obscuring that information could reasonably be expected to influence decisions that the primary users of general purpose financial reports make on the basis of those reports. The concept of double materiality should also be considered. For example, it is not just climate-related impacts on an entity that may be material but also impacts of an entity on the climate – or any other dimension of sustainability.

An entity whose sustainability-related financial disclosures comply with all of the relevant requirements of IFRS Sustainability Disclosure Standards would include an explicit and unqualified statement of compliance.

The basis of what is proposed by the draft standard is consistent with the recommendations of the TCFD. It goes further by including requirements, not only recommendations, and is applicable to all aspects of sustainability reporting, not only climate change.


Sustainability Reporting Assurance

The EC’s CSRD proposal introduces an EU-wide requirement for limited assurance on sustainability information with the end goal to move to more extensive reasonable assurance in the longer term. A discussion paper published by Accountancy Europe provides insights from practice on key matters related to this new assurance requirement and poses questions to stakeholders, including policy makers and standard setters, with the intention of reaching a common understanding on the practical implications.

Sustainability report assurance is the process of ensuring that a company’s sustainability report meets certain standards. The responsibility for sustainability reporting should be initiated by those charged with governance. An assurance engagement would include, inter alia:

  • Independent assurance of a sustainability report against international standards;
  • External validation of a company’s reported impacts through an independent process;
  • A clear understanding of how a company generates, uses and discloses data on its sustainability performance; and
  • Examining evidence that information reported is credible and reliable.

Robust sustainability reporting standards are a critical pre-requisite for high-quality reporting by companies and the provision of high-quality assurance. Once companies have put in place the necessary measures to report sustainability information according to the standards, independent assurance would assess whether the information is accurate in all material aspects. It should also consider whether the reporting provides the complete story in a neutral manner, i.e., without cherry picking, undue emphasis, or omission of information.



The development of sustainability reporting has gathered significant momentum in recent months with the publication of draft standards.

This is a hugely formative time for sustainability reporting, its integration with financial reporting and ultimately the development of a comprehensive corporate reporting framework.

Get on board – now is the time to be heard!

Deloitte publications that provide helpful insight on sustainability reporting and recent developments include:

European sustainability reporting – EFRAG launches ESRS

Sustainability reporting – ISSB proposes global baseline

Investor demand for corporate reporting in line with Paris Agreement

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