ACCA (the Association of Chartered Certified Accountants) welcomes the objectives of the new proposals to drive a greener, fairer, and more sustainable Europe and support the implementation of the Sustainable Development Goals.
The European Commission’s unveiled new proposals for an EU Taxonomy Climate Delegated Act, a Corporate Sustainability Reporting Directive - revising the Non-Financial Reporting Directive (NFRD), the Audit Directive and Regulation and the Transparency Directive - and amendments to delegated acts to better reflect sustainability preferences in insurance and investment advice, and sustainability considerations in product governance and fiduciary duties.
The COVID-19 crisis has exacerbated economic, social, environmental and governance (ESG) risks and issues affecting both businesses and society, further highlighting the need for urgent action and to consider ESG issues and solutions together. The new proposals could therefore be a decisive step towards improving the quality, comparability and consistency of corporate reporting, to ensure a greener and fairer transition to a more sustainable business model for companies, and contribute to a more sustainable, long-term geared society.
Commenting specifically on the new Corporate Sustainability Reporting Directive, Mike Suffield, Director of Professional Insights says: ‘We are pleased to see that the new proposal is extending the scope of application of the Directive. As we indicated in our response to the NFRD review consultation, we are convinced that all large and all listed companies have responsibility to report to their investors, and to the primary users of sustainability information. We therefore welcome the proposal to develop sustainability standards for reporting by listed SMEs, and the fact that non-listed SMEs, which are not within the scope of the mandatory application, are given the option to use them on a voluntary basis. Consideration should nevertheless be given to the supply-chain reporting implications of larger entities that may impact SMEs.’
Mike Suffield adds: ‘We agree that reported information is often difficult for users to find and rarely available in a machine-readable digital format, and warmly welcome the requirements to prepare companies’ financial statements and their management report in a single electronic reporting format . In addition, as highlighted in our recent report on the Capitalisation of intangibles debate, information on intangibles is generally underreported, even though they currently represent the majority of investment carried out by the private sector in advanced economies. We therefore welcome the new requirements for companies to provide information about their strategy, targets, the role of the board and management, the principal adverse impacts of the undertaking, intangibles, and how undertakings have identified the information that they report.’
ACCA also welcomes the fact that the new proposals require all entities under the scope of the Directive to seek, as a first step, limited assurance for reported sustainability information. The new Non-Authoritative Guidance on Applying ISAE 3000 (Revised) to Extended External Reporting (EER) Assurance Engagements by the IAASB will timely assist assurance practitioners and entities in complying with this requirement.
‘As indicated in our recently published Guide on natural capital management for internal and external auditors developed in collaboration with ECIIA and Deloitte, audit and assurance on high-quality non-financial information (NFI) are an essential step in driving credible business, as well as confidence and trust in an organisation’s sustainability content, data and processes portrayed in both internal and external report.
‘But the journey to high-quality NFI reporting and assurance has only started, and still faces several practical challenges, linked to its object, its basis, it’s scope, its level, or its nature, and also on the professionals - and their skills - who will carry-out the audit and assurance activities. This is precisely what we will be debating at our joint event called Working Together for the Planet: Audit & assurance of sustainability information ,to be held next week’, Mike Suffield stresses.
As a global accountancy body, ACCA shares the Commission’s perspective that global convergence of standards is essential to avoid fragmented markets and enable cross-border investments to help achieve the global climate and environmental goals.
Mike Suffield however warns: ‘We’re pleased to see that the EC recognises that important international initiatives at a global level aim to foster the global convergence and harmonisation of sustainability reporting standards, and that it fully supports this ambition. We also understand that the new proposals intend to build on and contribute to international initiatives on sustainability reporting. However, while we welcome the European Commission’s willingness to take the lead on sustainability globally and to develop EU sustainability standards in constructive two-way cooperation, we also recommend that any future sustainability reporting standards, as well as related assurance standards, should be based on an endorsement model of globally generally accepted sustainability standards.’
‘We now look forward to taking part in the ongoing co-decision making work towards an ambitious - while practicable and globally consistent - outcome’, Mike Suffield concluded.
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