To follow the guides or not
Marie-Josée (MJ) Privyk
I help companies produce their own ESG disclosures, even on a tight budget. All insights are mine, not Gen AI's.
Many of the items this week refer to guidance and tools to support companies in navigating the rapidly changing corporate sustainability reporting landscape. Indeed, there is no shortage of purportedly helpful resources coming out of the woodwork. So much so, that practitioners might soon find themselves muddled by the amount of helpful guides. The key is to select a few from credible sources and block out the noise. I’m sure someone somewhere is working on a interoperability mapping of mappings.
Thanks for tuning in. Be well.
EFRAG implementation guidance update
1. Preparing implementation guidance on transition plans
The European Financial Reporting Advisory Group (EFRAG) announced it’s preparing guidance to help companies subject to the Corporate Sustainability Reporting Directive (CSRD) disclose their transition plans in line with European Sustainability Reporting Standards (ESRS). It aims to explain the topics to be included in the transition plan and their integration into the sustainability report in line with the requirements of the adopted standards. It’s not clear when this guidance will be available, but it’s likely several months away.
The ESRS define a transition plan as “A specific type of action plan that is adopted by the undertaking in relation to a strategic decision and that addresses: i. a public policy objective; and/or ii. an entity-specific action plan organised as a structured set of targets and actions, associated with a key strategic decision, a major change in business model, and/or particularly important actions and allocated resources.” They further define a transition plan for climate change mitigation as “An aspect of an undertaking’s overall strategy that lays out the undertaking’s targets, actions and resources for its transition towards a lower-carbon economy, including actions such as reducing its GHG emissions with regard to the objective of limiting global warming to 1.5°C and climate neutrality.”?
It’s interesting to note that there could potentially be different kinds of transition plans. Indeed, #change is coming not just in relation to climate.
It’s also very interesting to note the recent flurry of initiatives specific to transition plans, including sector guidances, as well the International Organization of Securities Commissions (IOSCO) adding to its 2024 Workplan the monitoring of emerging practices in the formulation and use of transition plans by asset managers and corporate issuers, to deepen its understanding of the relevance of transition plans in supporting capital markets efficiency and integrity, and investor protection.
2. Finalizing materiality assessment implementation guidance
It seems that EFRAG’s sustainability reporting technical expert group has approved a revised version of the materiality assessment implementation guidance (IG1). It still needs to go through deliberation and final approval by EFRAG’s sustainability reporting board, but for those wanting to dive in right away, you can find the documents here. This is proving to be a very useful resource for the many companies struggling to wrap their minds around the double materiality assessment exercise, which EFRAG has specified is not limited to a stakeholder survey, and definitely not limited to a single survey to all stakeholders on all potentially material sustainability matters at the highest level of the organization… This changes things.
(It also seems the revised draft value chain implementation guidance was also slated for approval by the technical expert group, however I have not seen it being approved.)
Strengthened collaboration between TNFD and GRI
The Taskforce on Nature-related Financial Disclosures (TNFD) and the Global Reporting Initiative (GRI) have announced they are deepening their collaboration and plan to provide even more implementation and capability building support through:
The two organizations had already been collaborating closely in producing their respective framework and standards, so the new news is really the interoperability mapping, which is becoming a very popular tool it seems… so much so that we may get muddled by all the interoperability mappings (ESRS-IFRS SDS, ESRS-GRI, ESRS-TNFD, TNFD-GRI, etc.). There will soon be a need for a master interoperability table. I’m sure somebody somewhere is working on that.
?Thematic Report on Biodiversity Disclosure Initiatives
The European Union’s Business and Biodiversity Platform, which provides a forum for dialogue on the links between business and biodiversity, recently published a Thematic Report on Biodiversity Disclosure Initiatives.?
It provides a comparative assessment of six biodiversity disclosure frameworks:
While I haven’t read the document in full, its presentation seems rather complicated to decipher. I suggest starting with the conclusions (pages 62-69), which present a clear summary of the assessment and list the many levels of alignment and similarity between the different frameworks. It also offers a novel assessment of the ‘level of effort’ in moving from one framework to another, which is another way of seeing how one framework is more comprehensive than another for a given requirement.
This comparative assessment exercise is also very similar to another research report published recently and co-authored by the United Nations Environment Programme World Conservation Monitoring Centre and the United Nations Environment Programme Finance Initiative (UNEP FI). It reviewed seven leading standards, frameworks, and systems for assessment and disclosure on nature-related issues (many of the same as above):
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I find this report does a better job of explaining a high-level comparison between these different frameworks and is more user-friendly.?
As I have mentioned many times, there is no shortage of resources coming out of the woodwork to help companies navigate the rapidly changing corporate sustainability reporting landscape. The key is to select a few from credible sources and block out the noise.
IFRS Foundation article on Digital financial reporting
The IFRS Foundation has published an article titled Digital Financial Reporting - Facilitating digital comparability and analysis of financial reports, explaining what digital financial reports are and how they are created; the benefits of digital financial reporting for investors, companies, and regulators; and the importance of the IFRS digital taxonomies. The article is featured in the IFRS Foundation’s new digital financial reporting page containing all its materials about digital financial reporting and the IFRS digital taxonomies—the IFRS Accounting Taxonomy and the upcoming IFRS Sustainability Disclosure Taxonomy (expected in Q2 2024). In a nutshell, it explains in plain language how “digital financial reporting allows investors and other users of that information to efficiently search, extract and compare companies’ accounting and sustainability-related financial disclosures.”
This article is a must read for anyone in the corporate sustainability reporting space – as for anyone in financial reporting, although I suspect they are already familiar with this content.?
It should also be required reading for all securities regulators, because it includes a call to action from the IFRS Foundation, stating that: “overcoming the current challenges associated with digital financial reporting will require effort from regulators and other stakeholders in the digital financial reporting ecosystem to ensure:?
Indeed, while digitized and tagged disclosures are becoming the norm, there are several jurisdictions that have not yet embarked on this transformation. A case in point is Canada, which is at risk of falling woefully behind the other Global North and many Global South jurisdictions.?
It’s worth noting from the report that over 90% of listed companies (by global market capitalization) are required to undertake digital financial reporting to some extent. And what applies to financial reporting will apply to sustainability reporting in the near future.?
By the way, if you're wondering why you don’t see any mention of the various jurisdictions proposing adoption of the IFRS Sustainability Disclosure Standards, it’s because there are many such initiatives that reported individually may create more noise than signal. I am working on a compilation that will make it easier to keep up to date and share. Stay tuned.
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