All a-board

Council and European Parliament agree to improve gender balance on company boards

The European Council and Parliament recently agreed on a new EU law promoting a more balanced gender representation on the boards of listed companies. More specifically, by 2026 listed companies should aim to have at least 40% of their non-executive director positions – or 33% combined target for their non-executive and executive director positions – held by members of the under-represented sex (interesting choice of words). It is worth noting that the legislation is intended to accelerate achievement of a more balanced representation of men and women on the boards – and management – of listed companies, with specific minimum targets, which means it’s about what companies are ‘doing’, not about what they’re ‘reporting’.

More on gender balance in the EU

Diversity, Equity, and Inclusion 101: Internal Audit’s Invaluable Role in Creating a Sense of Belonging at Work

Speaking of diversity, the Institute of Internal Auditors has published a report that explains why it’s essential for internal audit to be more involved in the organization’s environmental, social, and governance efforts and in particular its diversity, equity, and inclusion (DEI) initiatives and disclosures. The noteworthiness of this paper is less about the ‘what’ and more about the ‘who’, in other words the emergence of the internal audit function embracing sustainability concepts and promoting their integration within companies. We believe the proximity of internal audit functions to a company’s ability to generate reliable data and information as well as auditable disclosures will serve to accelerate the convergence of corporate financial and sustainability data and reporting. Expect more papers like this one in the future.

?Read the report

PBAF draft standards for impact assessment

The Partnership for Biodiversity Accounting Financials (PBAF) has released its PBAF Standard v2022 Biodiversity Impact Assessment, a new standard for financial institutions to measure the impact of loans and investments on biodiversity. More specifically, it describes what is needed to carry out a biodiversity footprint: an assessment for financial institutions to measure, manage, and report on the negative and positive impact of their loans and investments on biodiversity. It’s good to know that the standard is said to be harmonized with other initiatives including the Taskforce for Nature-related Financial Disclosures (TNFD), the Science Based Targets Network (SBTN), and the EU Align project. While we haven’t done a deep dive on this yet, a quick flip-through confirms that measuring and addressing biodiversity loss will be orders of magnitude more complex than climate change! It’s also worth noting that PBAF is a sister initiative of the Partnership for Carbon Accounting Financials (PCAF), which now has a membership of 264 financial institutions worldwide and has published its standard for measuring financed carbon emissions.

?See the draft PBAF v2022 standard

Accounting, audit, and ethics standard boards mobilize ahead of sustainability reporting

A cascade of recent announcements by various standard-setting organizations draws a picture of the mobilization to integrate sustainability concepts that is occurring across the corporate reporting value chain.

• In Canada, the?Accounting Standards Oversight Council?(AcSOC) and?the Auditing and Assurance Standards Oversight Council?(AASOC) have mutually approved the formation of the Canadian Sustainability Standards Board (CSSB) pursuant to the recommendation of the Independent Review Committee on Standard Setting in Canada. The CSSB, which is expected to be operational by April 2023, will "work in lockstep with the International Sustainability Standards Board to develop and support the adoption of IFRS? Sustainability Disclosure Standards – ensuring that the Canadian perspective is part of international decision making."

Read the AcSOC press release

• The International Audit Assurance and Standards Board (IAASB) has committed to creating new sustainability assurance standards. It’s currently in the process of identifying the specific approach to do so but has already determined that they will need to be framework-agnostic and principles-based, in order to work with all sustainability/ESG reporting frameworks, and that they will be developed in a phased approach. Initial actions will focus on an overarching standard that addresses all areas of the engagement in principle, with specificity provided on key areas.?The IAASB expects the proposed new sustainability assurance standards will be ready for public comment during the second half of 2023. While this may seem “slow” to some, the organization believes that the existing International Standards on Assurance Engagements (ISAEs) and non-authoritative sustainability assurance guidance enable it to take the time to ‘do it right’.

Read the IAASB announcement

• The International Ethics Standards Board for Accountants (IESBA) has announced it will develop “fit-for-purpose, globally applicable ethics and independence standards as a critical part of the infrastructure needed to support transparent, relevant and trustworthy sustainability reporting” to keep pace with the transformation of the corporate reporting landscape.?It will be working in tandem with the development of the IFRS Sustainability Disclosure Standards and the IAASB’s upcoming sustainability assurance standards mentioned above, “so that coherent, mutually reinforcing building blocks of standards can be put in place around the same time to support the necessary regulatory infrastructure for sustainability reporting”. In the meantime, IESBA intends to issue guidance to draw the attention to the fundamental principles and key provisions of the IESBA’s?International Code of Ethics for Professional Accountants (including International Independence Standards) ?that already apply broadly to sustainability reporting and assurance.

Read the IESBA announcement