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The first set of “game-changing” standards would start from reporting year 2023. EFRAG’s report says they should include the concepts of double materiality and quality of information, as well as core standards for environmental, social and governance reporting. It recommends advanced standards in some areas, particularly climate change disclosure where Task Force on Climate-related Financial Disclosures recommendations are already widely used.
The second set of standards will enhance reporting and kick in the following year, adding advanced standards for other priority risks. EFRAG says the EC should consider whether to prioritise the most-impacted sectors first, or introduce these measures for all sectors but with a more limited, core approach.
But EFRAG says sustainability reporting will not have reached its target through these two sets of standards. Further standards would therefore be added for reporting year 2025 and beyond.
EFRAG says that a phased approach to sustainability reporting will create a “clear and robust due process, a swift start and adequate resources”. The reporting should then be placed “as soon as possible under the umbrella of the appropriate EU standard-setting governance”.
Although the standard-setting body has yet to be decided, EFRAG published a second report detailing changes to its own governance that would allow it to become Europe’s sustainability standard-setter.
Its report adds that “due consideration” should be given to SMEs in preparing sustainability reports and, potentially, the European standard-setter could adopt a proportionate approach tailored to these companies.
Chair of the EFRAG taskforce Patrick de Cambourg, president of the French accounting standard-setter Autorité des Normes Comptables, said: “The proposals in the report do not constitute a first attempt at standard-setting, but rather describe the scope and structure of future sustainability reporting standards that contribute to the achievement of the EU’s policy objectives.”
The Global Reporting Initiative (GRI) welcomed EFRAG’s report and moves to give sustainability reporting an equal footing with financial reporting, as it proposed in January.
Eric Hespenheide, chairman of GRI, said: “The recommendations put forward for EU sustainability standards, if realised, would significantly advance sustainability reporting in Europe, by requiring the double materiality and multi-stakeholder focus that is necessary to ensure companies are accountable for their impacts.”
He noted that EFRAG has encouraged the EC to work with existing sustainability reporting initiatives. “GRI looks forward to working with the Commission and EFRAG, contributing our expertise and unique perspective from more than 20 years as the global pioneer of sustainability reporting,” he said.