EU sustainability reporting
The European Sustainability Reporting Standards (ESRS) were published at the end of last year. This means that the 12 main ESRS are now a legal requirement in the EU and applicable to large quoted companies from 1 January 2024 and unquoted large companies from 2025, with other companies coming within their scope over time.
The European Financial Reporting Advisory Group (EFRAG) has issued three separate guidance documents to help with the implementation of the 12 ESRS.
- Draft EFRAG IG 1 provides guidance on materiality assessment.
- Draft EFRAG IG 2 speaks to the value chain requirements of the ESRS.
- Draft EFRAG IG 3 contains the detailed ESRS datapoints as a Microsoft Excel workbook with an accompanying explanatory note.
SME sustainability reporting
EFRAG has launched a public consultation on two sustainability reporting standards for SMEs: ESRS for listed SMEs (ESRS LSME) and ESRS for SMEs who voluntarily make sustainability disclosures (ESRS VSME).
It is intended that the listed SME standards will be effective from 1 January 2026 (with a two-year opt-out).
The standard should harmonise data requests and reduce the SME disclosure workload
The voluntary non-listed SME standards are intended to support SMEs in accessing sustainable finance and in responding to requests for sustainability information from business counterparts (ie banks, investors or larger companies for which non-listed SMEs are suppliers) in an efficient and proportionate manner.
Currently, many large corporate procurement departments are all looking for different sustainability information from their SME suppliers and the standard should serve to harmonise data requests and reduce the SME disclosure workload.
Sustainability assurance and audit
In addition to the ISSA 5000 sustainability assurance standard, the International Ethics Standards Board for Accountants (IESBA) has also launched two exposure drafts on ethical considerations in sustainability reporting and assurance.
Financial statements disclosures
The Irish Auditing and Accounting Supervisory Authority (IAASA) has issued a summary of its examinations of financial reports completed in 2023. This identified that the reporting of the impact of climate change and climate impact mitigation initiatives under ESRS will have a major impact from 2025. The report also concludes that there continues to be strong disclosure compliance by companies within the scope of IAASA supervision.
The UK’s Financial Reporting Council has published a similar review entitled Reporting by the UK’s largest private companies, providing details of the quality of reporting, including areas where the standard could be improved.
IASB and ISSB update
The International Accounting Standards Board (IASB) and the International Sustainability Standards Board (ISSB) have issued their joint January 2024 Update. Included is a post-implementation review of IFRS 15, Revenue from contracts with customers; the second comprehensive review of the IFRS for SMEs Accounting Standard (the basis for FRS 102); and a paper on Disclosure Initiative for Subsidiaries without Public Accountability.
Podcasts addressing the issues in the newsletter are available here.
