The Chairs of ESAs issued a letter in response to the IFRS consultation on sustainability reporting. In the letter, the Chairs agreed that improving data availability and public disclosure by corporates is a key element to foster sustainable growth and strongly support the development of globally accepted non-financial reporting standards to facilitate the disclosure of meaningful and comparable metrics on environmental, social and governance (ESG) aspects. They also support that international standards should build on existing jurisdictional and international initiatives, including those of EU. ESMA also published a detailed response to this consultation on sustainability reporting. In its response, ESMA recommends establishing high-quality international standards while catering to the needs of jurisdictions that are at different stages in their sustainability efforts.
IFRS had issued a consultation paper in September 2020 to better identify stakeholder needs in the area of sustainability reporting and further understand how to address current demands. In their response to the consultation, ESAs support IFRS with the expertise built in the European regulatory and supervisory community in its ambitious and important endeavor to improve sustainability reporting globally. The joint letter highlights that any non-financial reporting standards and underlying methodologies will have to be sufficiently clear to be auditable and enforceable, also emphasizing the following aspects:
- The letter notes the importance of global challenges posed by sustainability for investors and other stakeholders and their call for a common set of standards. ESAs support the IFRS initiative to consider the potential for globally accepted sustainable reporting standards to promote internationally consistent and comparable non-financial reporting. ESAs point out that, to be successful, any future standards should cater to jurisdictions that are at different stages of development in the area of sustainable finance, while ensuring that the best and most advanced available practices are used as a basis for the development of these standards.
- It is important to build on the existing initiatives and to take key notions such as double materiality into account; the aim of this should be to enhance the relevance of disclosures and require reporting on the impact of sustainability risks on business models as well as the impact of businesses on sustainability factors.
- Additional aspects of ESG, beyond climate, need to be addressed.
The ESA letter and ESMA response follow the June 2020 joint response of ESA Chairs to EC in relation to the review of the Non-financial Reporting Directive, also known as NFRD. In the June response, the three ESA Chairs had acknowledged the need for a standardization solution in Europe, while calling for the development of international standards in the medium term. The ESMA response to this consultation notes that, in developing international standards for sustainability reporting, IFRS builds on the available initiatives and leverages on the experience of jurisdictions, such as Europe, where work is already advanced in terms of principles and requirements for non-financial reporting and sustainable finance.
Keywords: International, Europe, EU, Banking, Insurance, Securities, ESG, Climate Change Risk, Reporting, Double Materiality, Non-Financial Reporting, NFRD, IFRS, ESAs
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