The European Banking Authority (EBA) and the European Central Bank (ECB) published their responses to the consultations of the International Sustainability Standards Board (ISSB) and the European Financial Reporting Advisory Group (EFRAG) on sustainability-related disclosure standards. Additionally, the Joint Committee of the European Supervisory Authorities (ESAs) published the first annual report on the extent of voluntary disclosure of principal adverse impact under the Sustainable Finance Disclosure Regulation (SFDR).
EBA responses to ISSB and EFRAG Consultations. EBA welcomes these consultations and agrees with the need to introduce international and European standards in response to the growing demand for relevant, reliable, and comparable corporate data on sustainability-related matters. The key response to the ISSB proposal relates to the definition and application of materiality, location of information and disclosure of the sustainability-related impacts, definition of value chain, disclosure requirements for transition plans and carbon offsets, current and anticipated effects of climate-related risks and opportunities, and cross-industry requirements and industry-based requirements. The key response to the EFRAG proposal relates to architecture of the cross-cutting standards and consistency with the ISSB’s initiative on sustainability-related disclosure requirements, double materiality approach and rebuttable presumption, location and presentation of information, collection and verifiability of information along the value chain, physical risks disclosures, and greenhouse gas intensity metric for transition plan. EBA called on ISSB and EFRAG to closely cooperate with each other during the finalization of their own consultations, to ensure greater comparability between EU companies and the companies outside EU, which will be adopting the international standards. EBA also stressed the importance of enhancing the disclosure of corporates’ transition plans and of standardizing the climate change-related metrics, to ensure the comparability and the quality of their disclosures.
ECB Response to ISSB consultation. ECB issued a letter to Emmanuel Faber, Chair of the International Sustainability Standard Board (ISSB), on the proposal for sustainability disclosure standards aiming to provide a global baseline. ECB is of the view that the ISSB climate standard should make it possible for stakeholders to obtain reliable and comparable climate-related information and thereby contribute to climate action consistent with the Paris Agreement goals. ECB highlights that the disclosure of transition plans should make direct reference to the Paris Agreement goals, the draft standard should require the disclosure of intermediate climate targets, and the draft standard should require disclosure of energy consumption. ECB considers that ISSB standard could benefit from additional guidance on how entities should conduct the assessment in order determine what information is material in terms of enterprise value. ECB is of the view that ISSB should provide a clear definition of the short, medium and long-term time horizons used throughout the standards. ECB also called on ISSB to construct its sustainability standard together with EFRAG to ensure alignment and compatibility between the ISSB and EU standards.
ECB response to EFRAG consultation. ECB welcomes the progress made by EFRAG in developing EU sustainability reporting standards. ECB welcomes in particular the reliance on quantitative metrics, the requirements to disclose well-defined forward-looking targets, transition plans in line with the Paris Agreement, as well as quantitative estimates of exposures to physical and transition risks. ECB considers the implementation of the climate standard to be a priority that should not be postponed. ECB encourages EFRAG to consider further improvements in some areas. While the ECB is generally satisfied with EU sustainability reporting standards on climate change, the disclosure requirements included in the other topical standards would benefit from further prioritization. ECB considers that the materiality assessment requires some fine-tuning. ECB encourages the development of the sectoral standards under the EU sustainability reporting standards, and in particular the timely development of standards for credit institutions. Here, special attention will be needed to ensure alignment with existing prudential disclosure requirements. ECB emphasizes the importance of the global coherence of sustainability disclosures and urges EFRAG and ISSB to continue their cooperation to minimize divergences.
ESA report on voluntary disclosures. Based on a survey of national competent authorities, ESAs have developed a preliminary, indicative, and non-exhaustive overview of good examples of best practices, and less good examples of voluntary disclosures. These examples have been listed in the annual report on the extent of voluntary disclosure of principal adverse impact under SFDR. The annual report highlights that the extent of compliance with voluntary disclosures varies significantly across respondents, but, overall, the first disclosures since the application of the SFDR are not very detailed. This is expected to change for the disclosures made for the 2022 reporting period once the SFDR Delegated Regulation applies. The report also includes a set of recommendations for national competent authorities to ensure appropriate supervision of financial market participants’ practices, such as running regular surveys in their own market to determine whether supervisory entities comply with Article 4 of SFDR disclosures. ESAs highlighted that the indications of good examples of best practices and recommendations included in this report must be considered preliminary at this stage and will be complemented further in subsequent reports. In terms of next steps, the European Commission may consider the ESAs’ findings and take those into account in any preliminary evaluation on the functioning of the SFDR
- EBA Press Release on Response to ISSB and EFRAG Consultations
- ECB Response to ISSB Consultation (PDF)
- ECB Response to EFRAG Consultation (PDF)
- Press Release on Voluntary Disclosures
- Report on Voluntary Disclosures (PDF)
Keywords: Europe, EU, Banking, Disclosures, Climate Change Risk, Sustainable Finance, ESG, Paris Agreement, SFDR, EFRAG, ISSB, EBA, ECB, ESAs
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
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