The European Commissioner for Financial Services, Mairead McGuinness, insisted on the implementation of horizontal non-financial European Sustainability Reporting Standards (ESRS) at the European Financial Reporting Advisory Group (EFRAG)’s Sustainability Reporting Board on Thursday 6 July.
“Focusing on ensuring a smooth implementation of the horizontal standards in my view is absolutely crucial before we move to sector specific standards”, she stressed, adding that they already represented “a huge step” for companies, particularly those that will be reporting for the first time.
The Commissioner had asked EFRAG to prioritise the implementation of the first set of ESRS over the preparatory work for the draft sectoral standards in April (see EUROPE 13156/25). She gave more explanations.
She believed that it was better to “get company engagement rather than resistance” so that they understood that “we are in a process of significant and important change“. She emphasised a gradual introduction and a more flexible approach to materiality by making some of the proposed reporting requirements voluntary.
However, she also stressed the need to take account of small and medium-sized enterprises (SMEs) (see EUROPE 13175/12). “The next priority should be to develop proportionate standards for SMEs”, she said. SMEs listed on the stock exchange must “meet the legitimate expectations of financial markets while also being significantly simpler than the full breadth of standards for larger companies”. EFRAG will also have to develop additional standards for voluntary use by unlisted SMEs.
As for the sector-specific standards, the Commission is currently examining the timetable for their development and approval.
The Commissioner also touched on a sensitive point: the interoperability of European standards with global standards. On Monday 26 June, the International Sustainability Standards Board (ISSB) had published its inaugural standards—IFRS S1 and S2, on the disclosure of financial information relating to sustainable development and climate change. Ms McGuinness assured that the ESRS will be " as compatible as possible” with global standards.
David Madon, Director of Sustainability, Policy and Regulatory Affairs at the International Federation of Accountants (IFAC), interviewed by EUROPE on Wednesday 5 July, explained that the ESRS definition and description of financial materiality still diverges from the IFRS definition of materiality. “We need as much interoperability and alignment as possible because this is good for all stakeholders that are involved”, he commented. “This is an example of a friction point that should be removed so that a global system can be founded on a global baseline of investor focused capital markets disclosures that makes sense for everyone”, he added. Other requirements - in the EU or elsewhere - may supplement this financial materiality component. “This is challenging to accomplish and it’s going to take some time to evolve”, he concluded. (Original version in French by Anne Damiani)