The International Financial and Reporting Standards (IFRS) announced on November 3 a new sustainability board to develop “in the public interest a comprehensive global baseline of high-quality sustainability disclosure standards to meet investors’ information needs.” The IFRS are promulgated by the International Accounting Standards Board (IASB) and have been adopted by over 140 countries (the U.S. continues to use FASB and GAAP). Assuming countries adopt the new IFRS sustainability reporting standards, the tracking, verification, and reporting of likely a wide range of material ESG elements will be compulsory for companies in those jurisdictions subject to the standards.
Meanwhile, the European Financial Reporting Advisory Group – a private association that works under the auspices of the European Commission — has proposed European Sustainability Reporting Standards (ESRS). If adopted by member countries, ESRS would require some organizations (called “undertakings”) within those countries to report on ESG elements according to the standards.
In the EU, “undertakings” are broadly defined as any entity engaged in an economic activity consisting of goods or services in a given market regardless of intention to earn profits, covering some 50,000 listed companies, as well as others. Similar to what would be required under IFRS, impacted organizations would be required to track and verify reportable material elements.
Both the IFRS and in particular the EU Economic Commission have communicated aggressive timelines to move forward with the development and proposed widespread adoption of their sustainability standards. If the new standards being contemplated become requirements, the impact will be enormous.
One of the first tasks of anyone who may deal with the new standards as a compliance officer or in another role is to understand a new and sometimes confusing international ESG lexicon. To help, here is a news summary paragraph. It includes an array of acronyms already in use by proponents and regulatory bodies connected with current ESG initiatives:
On November 3rd, the IFRS announced a new sustainability board, the ISSB, has been formed to work alongside its accounting standards board, the IASB, and further that the sustainability standards organizations, the CDSD and the VAF, a recent merger of SASB and IIRC, will soon be consolidated into the IRFS Foundation. On November 16th, the EFRAG that works closely with the EC, an executive branch of the EU, regarding IFRS Foundation standards, issued an important status report relating to the EC’s CSRD legislative proposal that would require compliance with ESRS as being developed by PTA–ESRS based on preliminary work completed by PTA-NFRS with further input to be provided by EWGs.
And here’s a key to the meaning of each of the acronyms that appear in the paragraph:
IFRS: International Financial Reporting Standards
ISSB: International Sustainability Standards Board
IASB: International Accounting Standards Board
CDSD: Climate Disclosure Standards Board
VAF: Value Added Foundation
SASB: Sustainability Accounting Standards Board
IIRC: International Integrated Reporting Council
EFRAG: European Financial Reporting Advisory Group
EC: European Commission
EU: European Union
CSRD: Corporate Sustainability Reporting Directive
ESRS: European Sustainability Reporting Standards
PTA: Project Task Force
NFRS: Non-Finanical Reporting Standards
EWGs: Expert Working Groups
Over the next several months, businesses around the world will want to follow closely both of these developments as well as expected required ESG-related disclosures from the U.S. SEC.
Thoughtful analysis and early preparation is always a recommended path.