The Association of Chartered Certified Accountants is calling for unification of global sustainability disclosure standards.
In April, the European Financial Reporting Advisory Group released the European Sustainability Reporting Standards that outline climate reporting requirements for European Union companies. However, ACCA voiced its concerns about the number of disclosures required in the draft and re-expressed its support for the International Sustainability Standards Board, arguing that some companies would struggle to follow the guidelines and that the proposed ESRS would not guarantee high-quality reporting.
"There is significant scope for greater alignment between the two sets of standards and this could be achieved in finalizing the ESRS," said ACCA senior manager Yen-Pei Cheng in a statement. "We urge EFRAG to provide clearer definition and guidance on double materiality: specifically on how impact materiality should be assessed in practice, and ensure that the financial materiality is aligned with the ISSB definition.'
The ISSB was established last November by the International Financial Reporting Standards Foundation to meet high demand from investors, policymakers, government officials and others for a more transparent, reliable and comparable climate reporting by companies. The Governance and Accountability Institute reported that 92% of companies in the S&P 500 Index published sustainability reports in 2020 and yet only 50% of global companies surveyed in 2021 thought they were performing adequately against environmental metrics.
In March, the ISSB released exposure drafts around general requirements for disclosure of sustainability-related financial information and climate-related disclosures, which received more than 1,300 comment letters. These proposed standards require companies to provide disclosure about governance, risk management, strategy, metrics and targets when it comes to environmental threats and opportunities for business. While both organizations have already expressed their intent to coordinate, ACCA is calling on EFRAG to maximize alignment between the ESRS and the ISSB global baseline.
"Maximum alignment is of paramount importance for investors and other stakeholders to have easily comparable information on sustainability-related issues," said Chen. "The cost to companies of sustainability-related reporting and assurance is equally important, especially for businesses that need to report under both ESRS and ISSB standards."
For the sake of international trade and alignment, ACCA encouraged the European Commission and EFRAG to follow ISSB standards for their sustainability reports. However, the European Commission already adopted the Sustainable Finance Package in April 2021, which defines a common reporting framework for nonfinancial data in Europe for the first time. Four times as many companies will now be encompassed by the regulations, and it became mandatory to rely on a statutory auditor to ensure that the sustainability information complies with EU certification standards. EFRAG is currently in charge of establishing those standards, and the entities involved will have to submit reports aligning with the ESRS by 2024.
EFRAG became the third institution to release a major sustainability proposal this year, another one being the U.S. Securities and Exchange Commission. In March, the agency proposed rules that would require domestic and foreign public companies to provide detailed reporting of their material climate impacts, greenhouse-gas emissions and transition plans. The proposal received over 600 responses and is currently under consideration for approval.
