The European Securities and Markets Authority (ESMA) published its response to the exposure drafts from the International Sustainability Standards Board (ISSB). The response addresses the general requirements for disclosure of sustainability-related financial information (IFRS S1) and the climate-related disclosures (IFRS S2).
In the response letter, ESMA welcomes the initiative of the IFRS Foundation to consolidate some of the existing standard-setting and framework initiatives and strongly supports the work of the ISSB to reach a common set of internationally accepted high-quality sustainability reporting standards that could serve as a global baseline. ESMA notes that while assessing the proposals in the exposure drafts, it has considered two main aspects on the suitability of the proposed requirements to serve well the information needs of investors. One of these aspects relates to the investors that operate in the European Union markets and are subject to the European Union-specific disclosure obligations; the other one relates to the potential for convergence of the ISSB proposed requirements with the draft European Sustainability Reporting Standards (ESRS) developed by the European Financial Reporting Advisory Group (EFRAG). Based on its analyses, ESMA is requesting the ISSB to reconsider its proposed requirements in the following five areas:
- Notion of sustainability-related financial information—ESMA states that the ISSB proposals do not define the sustainability-related matters addressed in the standards and recommends that the ISSB converges the scope and definition of what is meant by ""sustainability" with other major standard-setting initiatives.
- Overall approach to materiality—ESMA recommends that the terminology in context of the identification of risks and opportunities be clarified and made consistent across the standard. ESMA would also like the role of external "impacts" in assessing enterprise value creation to be clarified and made consistent with the impact identification process of other standard-setting initiatives (such as the ESRS).
- Use of entity-specific disclosures and metrics—ISSB envisages issuers being able to determine their own metrics and disclosures either to complement those already envisaged by an IFRS sustainability standard or where there is a lack of specific requirements as regards a certain matter. In ESMA’s view, where such metrics could qualify as "adjusted" versions of those mandated by the individual ISSB standards, they should be accompanied by adequate disclosures.
- Use of sector-specific guidance from the Sustainability Accounting Standards Board (SASB)—ESMA recommends that ISSB should consider how to introduce SASB guidance as part of its mandatory requirements in the climate-reporting standard, while excluding parts of the guidance not necessarily related to climate, amending aspects of the guidance not wholly suitable for global application given their jurisdiction-specific connotations, and considering a phased application of such requirements.
- Transition plans and emissions offsets—ESMA recommends that the ISSB should complement its requirements with additional key details critical to achieving the comparability and relevance of reported information and improve the convergence with the draft ESRS proposals.
Related Link: ESMA Response (PDF)
Keywords: International, Europe, Banking, Disclosures, ESG, Climate Change Risk, Sustainable Finance, ISSB, Exposure Draft, IFRS, ESRS, EFRAG, SASB, Reporting, ESMA
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.
Previous ArticleCPMI and IOSCO Issue Guidance on Stablecoin Arrangements
The Bank for International Settlements (BIS) published a paper that studies impact of fintech lending on credit access for small businesses in U.S.
The Prudential Regulation Authority (PRA) issued the policy statement PS8/22 to amend the Own Funds and Eligible Liabilities (CRR) Part of the PRA Rulebook and update the supervisory statement SS7/13 titled "Definition of capital (CRR firms).
The European Banking Authority (EBA) launched the EU-wide transparency exercise for 2022, with results of the exercise expected to be published at the beginning of December, along with the annual Risk Assessment Report.
The Single Resolution Board (SRB) welcomed the adoption of the review of the Capital Requirements Regulation, or CRR, also known as the "CRR quick-fix."
The European Commission (EC) recently adopted the Delegated Regulation 2022/1622, which sets out the regulatory technical standards to specify the countries that constitute advanced economies for the purpose of specifying risk-weights for the sensitivities to equity.
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying and, where relevant, calibrating the minimum performance-related triggers for simple.
The European Central Bank (ECB) is undertaking the integrated reporting framework (IReF) project to integrate statistical requirements for banks into a standardized reporting framework that would be applicable across the euro area and adopted by authorities in other EU member states.
The European Banking Authority (EBA) has been awarded the top European Standard for its environmental performance under the European Eco-Management and Audit Scheme (EMAS).
The Monetary Authority of Singapore (MAS) set out the Financial Services Industry Transformation Map 2025 and, in collaboration with the SGX Group, launched ESGenome.
The Basel Committee on Banking Supervision met, shortly after a gathering of the Group of Central Bank Governors and Heads of Supervision (GHOS), the oversight body of BCBS.