ECOVIS International ESG Summer 2024 Update

In the last few months, the EU has made significant advancements in ESG (Environmental, Social, and Governance) regulations, particularly with the adoption of the European Sustainability Reporting Standards (ESRS) under the Corporate Sustainability Reporting Directive (CSRD). These standards will apply to a broad range of companies, including large EU companies, EU-listed small and medium-sized enterprises (SMEs), and certain non-EU companies operating within the EU.

EFRAG and ISSB Release Interoperability Guidance

EFRAG and the ISSB have issued guidance to improve interoperability between the European Sustainability Reporting Standards (ESRS) and IFRS Sustainability Disclosure Standards (S1 & S2). This guidance aims to streamline the reporting process for entities adhering to both frameworks, focusing on climate-related disclosures and general sustainability information. It includes detailed mapping between specific standards, demonstrating their alignment and facilitating efficient data collection, governance, and control.

The document outlines how companies can comply with both sets of standards by providing a comprehensive comparison of their requirements, supporting greater transparency, comparability, and accountability in sustainability reporting.

Recommendation

Organizations should leverage this interoperability guidance to simplify their reporting processes, ensuring they meet both ESRS and ISSB standards efficiently. By doing so, they can improve data accuracy, reduce reporting burden, and enhance their sustainability transparency and accountability. This approach will also help companies comply with evolving global and regional sustainability reporting mandates.

ACCA Highlights on Sustainability Reporting

The ACCA underscores the significance of sustainability reporting for all organizations, emphasizing its role in transparency, regulatory compliance, and stakeholder trust. Key elements include the integration of financial and sustainability data, stakeholder engagement, and leveraging technology for accurate data management and reporting.

Key Components and Recommendations

1. Material Issues: Address significant ESG issues impacting stakeholders and business decisions.
2. Data Collection: Establish robust processes for accurate data collection and verification.
3. Technology: Implement suitable technology to efficiently manage and report sustainability data.
4. Stakeholder Engagement: Maintain clear communication to build trust and support strategic decisions.

Specific Guidance for SMEs

ACCA advises SMEs to view sustainability reporting as a strategic advantage. Integrating sustainability into business strategies can attract investment, enhance reputation, and retain talent. SMEs should follow a structured reporting cycle and utilize existing frameworks for guidance.

Action Steps

• Utilize Established Frameworks: Guide data collection and reporting processes.
• Engage Stakeholders: Regularly communicate sustainability efforts and outcomes.
• Invest in Technology: Adopt appropriate technology solutions for data accuracy.
• Continuous Improvement: Regularly review and improve reporting practices.

These steps will help organizations enhance their sustainability reporting, ensuring compliance and fostering stakeholder trust.

Committee of European Auditing Oversight Bodies (CEAOB) Launches Public Consultation

The CEAOB enhances EU-wide audit oversight by coordinating national audit oversight bodies and ensuring consistent application of EU audit legislation.

In response to a request from the European Commission, the Committee of European Auditing Oversight Bodies (CEAOB) has developed draft non-binding guidelines for providing limited assurance on sustainability reporting.

The committee is composed of national representatives and observers from the European Securities and Markets Authority (ESMA), European Banking Authority (EBA), and European Insurance and Occupational Pensions Authority (EIOPA).

Recommendation

Organizations should engage with the CEAOB's consultations and guidelines to ensure compliance with evolving EU audit and sustainability reporting standards. This proactive approach will aid in meeting regulatory requirements and enhancing audit quality.

For more information, visit the CEAOB page.

ESMA's Guidance on European Sustainability Reporting Standards (ESRS)

The European Securities and Markets Authority (ESMA) has issued a comprehensive statement on the first application of the European Sustainability Reporting Standards (ESRS). These standards are integral to the Corporate Sustainability Reporting Directive (CSRD) and aim to enhance the consistency and quality of sustainability information across the EU. ESMA’s guidelines focus on ensuring that sustainability reports are comparable, reliable, and meaningful for investors and stakeholders.

Key Points of ESMA's ESRS Statement

1. Consistency and Quality: The ESRS aims to promote high-quality disclosure of material sustainability information, aligning with the broader objectives of the CSRD and other EU legislation.
2. Technical Recommendations: ESMA has provided technical input to refine the standards, addressing issues such as consistency, terminology, and materiality assessment processes.
3. Interoperability: The standards are designed to be interoperable with global sustainability reporting frameworks, ensuring that European businesses can meet both EU and international requirements.

Next Steps and Implementation

ESMA will continue to monitor the application of these standards and issue further guidance as necessary. The initial set of ESRS has been adopted by the European Commission and will come into force following the non-objection period of ?the European Parliament and Council.

Recommendation

Organizations should familiarize themselves with the ESRS and integrate these standards into their reporting processes. Adherence to these guidelines will increase transparency, improve investor confidence, and support the transition to a sustainable economy.

New tool to help financial institutions assess climate-related risks, aims to ?integrate ?climate risks into short term strategies.

The UNEP Finance Initiative (UNEP FI) and the National Institute for Economic and Social Research (NIESR) have introduced new short-term climate scenarios?to aid financial institutions in assessing climate-related risks. These scenarios focus on the immediate impact of climate change commitments on financial planning, addressing a gap typically filled by long-term analyses. The report includes a visualization tool to analyze macroeconomic, transition, and physical risk shocks. This initiative supports asset managers, insurers, bankers, and investors in incorporating climate risks into their short-term strategies.

Recommendation

Financial institutions should utilize these short-term scenarios to enhance their risk assessment frameworks, ensuring they are prepared for immediate climate-related shocks. This proactive approach can improve resilience and strategic planning.

ESMA Proposes New Measures for Sustainability Reporting: GLESI to standardize EU-wide

The European Securities and Markets Authority (ESMA) has introduced the Guidelines on Enforcement of Sustainability Information (GLESI) to standardize the way ?sustainability reports are supervised across the EU. The GLESI aim to ensure that corporate sustainability disclosures are consistent, transparent, and reliable, reinforcing the EU's position as a leader in green finance. These guidelines align with the European Sustainability Reporting Standards (ESRS), which set the criteria for corporate sustainability reporting. ESMA will monitor compliance from 2025 and release further recommendations by the end of 2024.

Recommendation

Follow and prepare for the implementation of sustainability reporting.

EFRAG's Guidance on Materiality Assessment

EFRAG's guidance document on materiality assessment offers a framework for identifying relevant sustainability information. It provides detailed methodologies for determining material sustainability topics based on their impact on the environment, society, and governance, as well as their influence on stakeholders' decisions. The guidance aims to help companies enhance the transparency and consistency of their sustainability reporting.

Recommendation

Organizations should adopt EFRAG’s materiality assessment methodologies to ensure their sustainability reports accurately reflect significant impacts and meet stakeholder expectations.

EFRAG Guidance on Value Chain Reporting

EFRAG's guidance on value chain reporting provides a framework for companies to disclose sustainability impacts throughout their value chains. It outlines methodologies for identifying and assessing significant value chain stages and their associated sustainability impacts, ensuring comprehensive and transparent reporting.

Recommendation

Organizations should integrate EFRAG's value chain reporting guidelines to enhance transparency and accountability, ensuring they capture and communicate the full scope of their sustainability impacts.

EFRAG Issued Data Points and Guidance on ESRS Data Points

EFRAG's explanatory note on the list of ESRS data points provides detailed explanations of the required data for sustainability reporting under the European Sustainability Reporting Standards (ESRS). It includes descriptions of each data point, its relevance, and how it should be measured and reported, aiming to ensure clarity and consistency in sustainability disclosures.

Recommendation

Organizations should use this guidance to accurately report ESRS data points, enhancing transparency and compliance with EU sustainability reporting standards.

Six Ways for Boards to Lead the Sustainability Transition

Accountancy Europe, in collaboration with Chapter Zero Brussels, ECIIA, and ecoDa, released "ESG Governance: Six ways for boards to lead the sustainability transition" in 2024. This publication is based on interviews with board members and sustainability experts about their experiences in implementing sustainability transition within their organizations. The paper offers advice and examples to support and inspire other board members, serving as a complement to the earlier publication "ESG Governance: questions boards should ask to lead the sustainability transition"

Recommendation

Recommend reading "ESG Governance: Six ways for boards to lead the sustainability transition" to gain practical insights and real-world examples from experienced board members and sustainability experts. This document can serve as a valuable resource for understanding effective strategies and best practices for implementing sustainability transition within organizations. Additionally, it can provide actionable advice and inspiration for board members looking to enhance their governance and leadership on sustainability. To maximize its benefit, consider how the guidance and examples provided can be tailored and applied to your specific organizational context and sustainability goals.

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