Welcome to the May 2023 edition of our global newsletter.

Since our last newsletter, there have been multiple announcements from various standard-setters and regulators across the world.

Let’s start with the International Sustainability Standards Board (ISSB) which released its request for information (also referred to as its agenda consultation exposure draft) on 4 May 2023. The responses to this should help to structure the ISSB work plan for the next two years. The agenda consultation comment period (120 days) will overlap with the issue of the General Sustainability-related Disclosure Requirements (IFRS S1) and the Climate-related Disclosures (IFRS S2). The Board also recently published another exposure draft regarding the proposed methodology for improving the international applicability of the SASB standards, with a 90 day comment period. We are also expecting the proposed IFRS Sustainability Disclosure Taxonomy (expected later in 2023). The final texts of IFRS S1 and IFRS S2 are expected to be issued in June 2023.

From a European perspective, the European Sustainability Reporting Standards (ESRS) will be adopted as delegated acts by the European Union after a final four-week request for comment period expected in June 2023. The date of this request is still unknown, but the Corporate Sustainability Reporting Directive (CSRD) requires the publication of the delegated acts before the end of August 2023. After completion of this milestone, the ESRS will face scrutiny from the European Parliament and Council of the European Union before going into effect for fiscal year 2024 (however, there is some speculation about the potential timing of these standards). Separately, having taken stock of the request from Commissioner McGuinness, the European Financial Reporting Advisory Group (EFRAG) is prioritising guidance on sector-agnostic standards over the development of sector-specific standards and standards for listed small or medium-sized entities (SMEs). As a consequence, EFRAG is currently working on a renewed timetable, but this means that the public consultation on the second set of ESRS (that is, sector-specific standards and standards for listed SMEs) will not be issued in Q2 2023 as initially planned.

The United States Security and Exchange Commission (SEC) proposed rule on climate-related disclosures has still not been finalised. The SEC has also planned to issue a proposal on human capital management disclosures and a final rule on the reporting of material cybersecurity events, both of which are expected in the first half of 2023. If these continue as expected, the remainder of the year will prove busy for SEC registrants.

Interestingly, the Securities and Exchange Board of India (SEBI) announced a requirement for mandatory reporting on a number of sustainability topics, and mandatory reasonable assurance on those disclosures. The SEBI is proposing a staggered approach, with a number of listed entities being impacted as early as 2024. The regulation requires additional value chain disclosures and assurance on a ‘comply or explain’ basis from 2025. These requirements are likely to result in obtaining information from subsidiaries, customers and suppliers headquartered outside of India. Similar to the CSRD in Europe, entities operating in other countries might be impacted by the proposed requirements issued by SEBI.

As some territories are considering mandatory assurance on sustainability reporting and understanding the value that various stakeholders attach to disclosures that have been externally verified, the International Federation of Accountants, the American Institute of Certified Public Accountants and the Chartered Institute of Management Accountants recently issued a study, ‘The state of play in reporting and assurance of sustainability information’ (available here). The study indicated that 95% of entities disclosed some level of sustainability data but that only 64% obtained assurance of the information and, for 80% of those, it was limited assurance – that is, in the form of negative assurance: “Nothing has come to our attention … to cause us to believe the subject matter information is materially misstated”. These findings contrast with current stakeholder expectations and result in an increasing trust gap between what entities are reporting and the level of assurance they are obtaining.

To assist in closing this trust gap, the International Auditing and Assurance Standards Board (IAASB) is currently working on a project to develop an overarching standard for assurance on sustainability reporting. The IAASB has also indicated that it envisages that a suite of standards for assurance on sustainability reporting will likely need to be developed over time.

As these and other regulatory requirements ramp up, and decision-useful sustainability reporting continues to be increasingly important to investors and other stakeholders, the lines of traditional reporting responsibilities within an entity begin to blur. As a result, audit committees are likely to see sustainability reporting and assurance oversight moving into their sphere of responsibility. Only time will tell …

-Andreas Ohl