Significant moves from the IFRS Foundation and the EU, together with clear indications from the UK government, should put members and others on notice that developments in sustainability reporting are happening at a pace, particularly when it comes to reporting on climate change.

“ICAEW is very supportive of these initiatives. We believe there is a pressing need for the development of a global set of high quality, authoritative sustainability reporting standards,” says Sarah Dunn, Technical Manager in ICAEW’s Financial Reporting Faculty.

At the EU level, Susanna Di Feliciantonio, ICAEW’s Head of European Affairs, adds: “We recognise the strong momentum at EU level to press forward with enhancing corporate sustainability reporting, to also respond to specific jurisdictional needs.”

The IFRS Foundation recently announced its strategic direction and next steps for establishing a Sustainability Standards Board which would set sustainability reporting standards. 

The four key themes for the IFRS Foundation’s strategic direction are:

• Investor focus on enterprise value: the new board would focus on information that is material to the decisions of investors, lenders and other creditors.

• Sustainability scope, prioritising climate: due to the urgent need for better information about climate-related matters, the new board would initially focus its efforts on climate-related reporting, while also working towards meeting the information needs of investors on other ESG (environmental, social and governance) matters.

• Build on existing frameworks: the new board would build upon the well-established work of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD), as well as work by the alliance of leading standard-setters in sustainability reporting focused on enterprise value. The Trustees will consider the prototype proposed by the alliance for an approach to climate-related disclosures as a potential basis for the new board to develop climate-related reporting standards. 

• Building blocks approach: by working with standard-setters from key jurisdictions, standards issued by the new board would provide a globally consistent and comparable sustainability reporting baseline, while also providing flexibility for coordination on reporting requirements that capture wider sustainability impacts.

“The Institute believes that the IFRS Foundation is in a strong position to help achieve this goal and welcomes the recent announcement and the four themes for its strategic direction,” says Dunn.

At the EU level, the European Commission has also published two reports on the development of EU sustainability reporting standards.

The first report proposes a roadmap for the development of a comprehensive set of EU sustainability reporting standards. It was prepared by a multi-stakeholder task force established by the European Financial Reporting Advisory Group (EFRAG).

A second report proposes reforms to EFRAG’s governance structure to ensure that future EU sustainability reporting standards are developed using an inclusive and rigorous process. It sets out, for example, how national and European authorities will be involved, while ensuring that the process also draws upon the expertise of the private sector and civil society.

Both reports recognise the importance of coordinating the development of EU sustainability reporting standards with existing and emerging global initiatives. The reports also make clear the EU-specific drivers, with sustainability standards seen as necessary to ensure the consistency of reporting rules across legislative areas that are central both to the EU’s sustainable finance agenda and its broader political ambition to green the European economy. The reports will feed into the forthcoming revision of the EU’s Non-Financial Reporting Directive, with new legislative proposals expected in April 2021.

Di Feliciantonio says: “As the EU continues to further define its approach, based on the recent reports from the EFRAG task force and the EFRAG Chair, we continue to underline the importance of both the EU/EFRAG and the Foundation to embed an outward-looking, streamlined and collaborative approach, committed to the ultimate end goal of developing global reporting standards for sustainability.”

There is plenty of action at the UK local level too. In the 2019 Green Finance Strategy, the government established a Taskforce, chaired by HM Treasury and made up of regulators and government departments, to explore the most effective approach to implementing the recommendations of the TCFD.

The UK has announced its intention to make TCFD-aligned disclosures mandatory across the economy by 2025, with a significant portion of mandatory requirements in place by 2023. The UK Taskforce’s Interim Report, and accompanying roadmap, sets out an indicative pathway to achieving that ambition.

These are early days, and while momentum is building at an international, EU and UK level, ICAEW is calling for a collaborative approach and welcomes the initial focus on climate and the TCFD framework. 

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