Following the end of the European Financial Reporting Advisory Group (EFRAG)’s consultation on European Sustainability Reporting Standards, ACCA has called for integration with ISSB on the grounds of complexity.
The Association of Chartered Certified Accountants (ACCA) has published a letter calling for one universal standard – suggesting the EU aligns with the International Sustainability Standards Board (ISSB) approach.
The EU’s sustainability guidelines currently require sustainability reporting including impact on climate, using a double materiality approach.
US based ISSB approach is focused on financially material impacts and, while easier, may ignore wider business risks.
Responding to exposure drafts (EDs) on European Sustainability Reporting Standards (ESRS), ACCA says that it has consistently advocated for a global approach to the development of sustainability disclosure standards.
Sustainability reporting requires standardised approach
ACCA is calling on EFRAG (European Financial Reporting Advisory Group) to maximise alignment between the ESRS and the ISSB global baseline and says that it fully supports the role of the ISSB in setting a consistent and comparable global baseline to sustainability reporting around the world.
Yen-Pei Chen, senior manager for Corporate Reporting, ACCA, said: ‘Maximum alignment is of paramount importance for investors and other stakeholders to have easily comparable information on sustainability-related issues.
EU takes the double materiality approach
The challenge with the ISSB approach is that it focuses on financially material issues – the potential risk of climate change impacts on the operations of the business. While that is an important part of any approach to understanding risk exposure, there is concern that failure to integrate impact into reporting will see important risks ignored in the evaluation of a business.
To promote global alignment and facilitate cross-border trade, ACCA is suggesting that the European Commission and EFRAG consider reporting in accordance with ISSB standards as equivalent to that of the European Sustainability Reporting Standards when these are supplemented with comparable impact reporting standards such as the GRI Standards.
ACCA warns of complexity in the EFRAG approach
The reasoning behind ACCA’s proposal is the breadth of disclosures required in the draft, arguing that some companies would struggle to follow the guidelines and that the proposed European Sustainability Reporting Standards (ESRS) may not actually lead to more relevant reporting.
The cost of compliance with reporting requirements is already significant. ACCA warned that given the amount of information that companies in scope would be required to collect could be overwhelming.
There is growing pressure to water down the requirements of the EU’s current approach, and the final guidelines are not expected to be released until next year. Earlier in 2022, the decision was made to include gas and nuclear in the EU’s Taxonomy for sustainable economic activities, which was seen as the abandonment of the EU’s commitment to sustainability. Now there is growing concern amongst those committed to improving transparency on sustainability, that the attempt to standardise reporting and increase knowledge about corporate impact will ultimately be undermined.