Keith Nuthall, journalist

Serious steps are being taken to forge international non-financial reporting standards, with the IFRS Foundation setting up a new board to agree global guidance. But in parallel, the European Commission has published proposals for a comprehensive non-financial reporting directive, the Corporate Sustainability Reporting Directive (CSRD), which could force listed EU companies to report on their environmental and social impact and governance issues, including ethics, innovation and supplier/customer relations.

The EU executive will be working from a blueprint developed and recently released by the European Financial Reporting Advisory Group (EFRAG), which has proposed a tight timetable. The CRSD sets out an even shorter timetable (they did not make reference to timing of EU standards): These indicators will be specified in a separate delegated act to be adopted by the Commission in June 2021, applying as of 2022. This would be a twin-track development, with companies being told to report some broader information related to environmental, social and governance (ESG) issues with possibly more detailed information on a specific topic, such as climate impact.

‘We could end up with the EU diverging from a global standard’

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The EFRAG Project Task Force to the EU Commission recommended that the depth of information required would grow, year by year, with guidance first addressing the key ‘double materiality’ concept of sustainability reporting where organisations would be required to report information necessary to understand their impacts on sustainability matters, and information necessary to understand how sustainability matters affect the undertaking’s development, performance and position. Another early conceptual guideline would describe the expected quality of non-financial information in areas such as relevance, faithful representation, comparability, understandability and reliability/verifiability.

Compared to the existing provisions, the CSRD introduces new requirements for companies to provide information about their strategy, targets, the role of the board and management, the principal adverse impacts connected to the company and its value chain, intangibles, and how they have identified the information they report.  Also, the CSRD has added ‘intangibles’ (including intellectual, human and social and relationship capital) to the mix, on top of the ‘sustainability matters’.

At the same time. the EU will adopt EU sustainability reporting standards, which will set out detailed disclosure requirements. There would also be reports on general sustainability guidance, sector-specific reports, and detailed reporting of a particular organisation’s non-financial impact.


It is an ambitious plan, accepts Patrick de Cambourg, EFRAG board member responsible for sustainability reporting, and president of the Autorité des Normes Comptables (ANC), the French accounting standard-setting authority. But he argues ‘our recommendation is a pragmatic roadmap’.

Even though this would entail the EU – which can take time in passing major legislation – approving a first set of standards in October 2022, de Cambourg stresses that the plan’s goal is ‘to increase the depth of coverage… on a step-by-step basis’. He says: ‘You make sure the next step doesn’t contradict the initial steps.’

Under the proposals, EFRAG would have a key role in developing these standards and would be receptive to bottom-up proposals from business, he says, while it makes the top-down decisions.

Regional deferment

Yen-pei Chen, ACCA manager of corporate reporting and tax, however, has concerns about the EU’s ambitious timeframe and would prefer the European system to be built on global conceptual guidance issued by the IFRS Foundation. The IFRS Foundation wants to integrate advice from existing systems such as that developed by CDP (formerly the Carbon Disclosure Project), the Climate Disclosure Standards Board, GRI (the Global Reporting Initiative), the International Integrated Reporting Council (IIRC) and the Sustainability Accounting Standards Board (SASB).

‘The EU standards should ideally be built on global standards,’ Chen argues. ‘There should be a global conceptual framework and a consistent set of global standards first, to which the EU can then add considerations for EU public good,’ she says, to ensure there is global consistency and comparability.

If the EU pushes ahead with its detailed – and mandatory – reporting system, then there could be unfortunate side effects. Chen warns: ‘We could end up with the EU diverging from a global standard. It’s not ideal.’

One particular concern is that the IFRS Foundation has stated that its new Sustainability Standards Board (SSB) will focus on enterprise value: that is, the new board would focus on information that is material to the decisions of investors, lenders and other creditors. By contrast, the EU is prioritising sustainability reporting as a public policy need, putting people and planet above information aimed at investors, dovetailing with the current European Commission’s European Green Deal umbrella policy.

Chen says such differences in priority could make the EU sustainability reporting standards look quite different from the SSB’s future global standards – both in terms of the topics covered, and the disclosures and metrics required.

Global baseline

As for the IFRS Foundation, it stresses that a ‘potential new sustainability-focused board would build on work already undertaken by other organisations both at an international and jurisdictional level’, which would include the EU. But it wants to create ‘a global sustainability reporting baseline, while also providing flexibility for coordination on reporting requirements that capture wider sustainability impacts’. The foundation’s planning documents state it wants to work ‘with regional initiatives to achieve global consistency and reduce complexity in sustainability reporting’.

But will these initiatives dovetail? De Cambourg says there is merit in taking this approach to developing sustainability reporting, with separate initiatives moving in parallel.

Also, could the EU system be overly burdensome for EU businesses, affecting their competitiveness? Chen says the EU should be ‘conscious about reporting burden’ and ‘propose a focused list of mandatory disclosures rather than a long list of sector-specific disclosures and entity-specific disclosures’.

But de Cambourg argues that with good sustainability reporting, European companies could become a role model, attracting better employees and reducing commercial risk to environmental and social problems. ‘One potential benefit could be attracting more capital because of increased transparency, which might be offered at a lower cost,’ he says.