We've entered an unbearable waiting game on all fronts of the sustainability reporting standards setting landscape, but behind the silence lies conflicting forces like tectonic plates that will either crash into each other or neatly assemble around the pressure points.
What we are waiting for.
We wait... for the publication of the final IFRS S1 and S2, in June. We are also waiting for an EFRAG/ISSB interoperability table on climate disclosures, with progress announced but no release date in sight.
We wait.... For the final proposed rules on climate disclosures, and the near-certain lawsuits against the US regulator that will follow.
The Commission interservice consultation on the first set of ESRS is in-progress, with the consultation on the draft Delegated Act on ESRS, originally scheduled for early May, now expected for the beginning of June for an adoption at the end of July and application in January 2024.
Indicative of these undercurrent forces are letters sent to EU Commissioner McGuiness. The latest of which was sent by the American Chamber of Commerce to the European Union (AmCham EU) earlier this month, calling for a reduction in the number of disclosures in the ESRS and greater alignment with the ISSB.
Law firm Frank Bold, who sits on the EFRAG Sustainability Reporting Board as one of the two civil society representatives, responded that the arguments used in the letter do not hold weight (see box out).
"The letter makes a strict correlation between Ursula Von Der Leyen's speech and the announcement of a reduction of corporate reporting requirements and the scope of the ESRS, whereas the announcement does not target sustainability reporting in particular and should not be understood as covering retroactive reporting requirements, which were already agreed upon by co-legislators fairly recently," Frank Bold told Corporate Disclosures.
"The reporting burden argument is not substantiated by evidence, other than recalling that disclosure requirements and related data points required by the ESRS have been significantly reduced compared to the initial proposals of EFRAG," the law firm continued. "Additionally, the European Commission has already made a step towards corporates by postponing the sector-specific work and prioritising the production of guidance."
AmCham was contacted for comment.
Frank Bold said the call for alignment with the ISSB has been well received and integrated into the final ESRS.
A stakeholder close to the elaboration of the European standards told Corporate Disclosures: "On climate, the difference between the European standards and the international standard is as thin as a rolling paper."
ISSB chair Emmanuel Faber told Corporate Reporting: "When it comes to climate, we're really looking at a situation where we are avoiding double reporting for companies."
The irony of a lobby group for US business interests arguing for Europe to align with international standards that the US will never adopt will not be lost on those that have followed accounting standards setting over the last 20 years.
But the call offers some interesting food for thought: could Europe's broader ambition of a double materiality, multi stakeholder reporting framework push the US into the arms of the more sober, 'investor focused' ISSB standards?
The Wall Street Journal has reported, on the back of a visit by EU officials to Washington, that US companies could be exempt from Europe's sustainability reporting requirements if the US SEC's pending requirements are rigorous enough.
One member of that delegation told Corporate Disclosures: "It's too soon to envisage these types of developments, Europe is still to finalise its standards for local companies, then it will address requirements from companies outside of the EU that fall within the scope of the CSRD."
According to research by Refinitiv, an estimated 3,000 US companies will have to comply with the European CSRD (and the associated reporting standards - ESRS) if they want to continue operating within the EU.
Incidentally, the US is a key battle ground for the ISSB. Its sister board, the IASB, has had no luck after 10 years of pushing and pulling, the idea of having IFRS standards adopted in the US died.
Corporate Disclosures understands ISSB chair Emmanuel Faber has put US adoption of the international sustainability standards pretty high up on his agenda.
He told Corporate Disclosures that he is "a strong believer the ISSB standards will be adopted in the US, hopefully supported by regulation, but certainly adopted by the market".
Voluntary adoption is probable, considering that over 90% of US companies that disclose sustainability information reference the SASB standards which the ISSB standards are heavily built on, but when it comes to mandatory adoption, it is already less likely.
But in a twist of events, in their efforts to have interoperable standards, EFRAG may be the ISSB's best friend in the US. Indeed, if the two organisations reach an agreement by which compliance with ESRS means compliance with ISSB standards – those 3,000 US companies complying with the ESRS would be ISSB compliant as well.
But the likelihood of such an arrangement seems as premature as the EU lifting reporting obligations for US companies at this stage.
Beyond the US, any non-EU company that operates in the European single market and falls under the CSRD scope will have to comply with the ESRS, while the ISSB standards are, at this stage, voluntarily and dependent on jurisdictional adoption processes to move into the mandatory space.
The sustainability reporting puzzle starts to assemble, and a picture is forming... but the game is far from over.