Calls for the global alignment of sustainability reporting standards is being complicated by differences of views about which standards to back between those developed by the European Union and a competing private sector standard backed by the well-known IFRS accounting standards organisation.
In a press release released today, EFAMA, an organisation representing the European investment industry, was clear about pointing out what it considers to be a significant defect of the ISSB standard backed by the IFRS.
In EFAMA›s consultation response, in which it stresses the importance of the principle of“double materiality” – disclosing economic, social and environmental impact in addition to financial impact – to “allow for well informed and beneficial investor decisions in alignment with the EU Sustainable Finance Framework
It then pointed out that while the European Financial Reporting Advisor Group (EFRAG) Exposure Drafts for ESRS include this principle, the competing ISSB standards “do not”.
The ESRS is a set of standards being developed as part of the EU›s proposal for a Corporate Sustainability Reporting Directive (CSRD).
EFAMA stressed that global alignment “will be necessary to ensure clarity for investors as Europe moves towards a zero emission economy by 2050.»
Staunch EFRAG supporter
EFAMA positions itself as a member a staunch supporter of EFRAG. EFRAG was set up as a private association in 2001 with the encouragement of the European Commission to serve the public interest.
Vincent Ingham, Director of Regulatory Policy at EFAMA, stated “As key users of company sustainability reports, asset managers recognise the vital importance of high-quality, standardised and relevant sustainability disclosures from companies they invest in, which is what EFRAG is aiming to achieve with their European Sustainability Reporting Standards (ESRS). At EFAMA, we broadly support the content of EFRAG’s recent Exposure Drafts for ESRS and have made some specific recommendations for improvements to be taken into account when finalising the guidelines.”
ISSB standard
As reported recently on Investment Officer LU, the ISSB has been developed by International Accounting Standards Board, which is behind the widely-used IFRS accounting standards. It was developed specifically for global investors.
In the ISSB camp, which includes the UK financial regulator FCA, Amanda Young, chief sustainability officer at UK-based asset management firm abrdn told Investment Officer that “I would argue that the ISSB is better suited to asset managers,” pointing out that the “corporate sustainability reporting directive was set up to mainly achieve EU political goals for changing corporate behaviour.
Interoperability
EFAMA has called for interoperability between EFRAG’s ESRS and ISSB disclosures “would reduce reporting burden for both users and preparers and further the goal of a clear global standard.”
EFRAG, the press release continues, “has already shown admirable commitment to this ideal, however more can still be achieved here.”
Moreover, “When it comes to minimising the amount of irrelevant data reported, the principle of ‘rebuttable presumption; will provide clear benefits to users of these sustainability reports – ie asset managers.
EFAMA said it will continue contributing to the discussion around sustainability reporting standards, acknowledging that this is “a key topic for asset managers and investors going forward.”
Related articles on Investment Officer Luxembourg:
- ‘EU sustainability reporting rules need global alignment’
- EU places ESG reporting on par with financial data
- APG says EU regime for impact funds creates greenwashing risk