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News

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We comment on the FCA’s consultation paper CP21/18

11 Sep 2021

We have published our comment letter on Financial Conduct Authority’s (FCA's) consultation paper CP21/18 'Enhancing climate-related disclosures by standard listed companies and seeking views on ESG topics in capital markets' (“the CP”).

Climate change is an undiversifiable risk, which requires an immediate and urgent response.  We strongly support the UK government’s goal of achieving transparency in business reporting on climate-related issues across the UK economy.  We agree that there is an important opportunity for the UK to establish a pathway towards mandatory reporting around the world via the 26th UN Climate Change Conference of the Parties (COP26). We therefore welcome the CP and, consistent with our response to the FCA’s previous consultation paper CP20/3, support the extension of the requirement to report in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) to standard-listed issuers with some exceptions.

Deloitte Touche Tohmatsu Limited’s (DTTL’s) Global CEO, Chairman and CFO are signatories to the statement of support for the Task Force on Climate-related Financial Disclosures (TCFD) and DTTL is actively involved in its work through our colleague Catherine Saire, a member of the TCFD. TCFD is market-driven and investor-focused and is recognised as an appropriate framework by the International Organization of Securities Commissions (IOSCO) globally and by the European Securities and Markets Authority (ESMA) in the EU.  It is not itself a standard, but it is a positive step towards a comprehensive global system.  Progress, including on standards covering climate, is accelerating, as shown by the recent steps taken by IOSCO and the IFRS Foundation, and we fully support and encourage the development of global sustainability standards which will enhance global comparability and consistency.  We appreciate that the proposals in this consultation represent an interim measure until such a standard is published and encourage the FCA – and the UK government more widely - to adopt and align with any such standard as soon as practicable and do all that it can to encourage its adoption by jurisdictions around the world to promote consistent and comparable disclosures.

More broadly, corporate reporting is part of a wider system of transparency that enhances confidence in capital markets and promotes efficient allocation of capital to long-term resilient business.  This therefore includes enhancing confidence in information provided in Green bond prospectuses, and on the use of proceeds of a bond or ESG data and ratings.  These are innovative, fast moving markets in their early stages.  However, investors and other capital markets participants increasingly rely on this information in their decision-making, in particular when assessing long-term, risk-adjusted returns.  Therefore, it is essential to promote trust, transparency, and confidence in the interests of flows of high-quality information relevant to investor needs.  As a result, we welcome moves by the FCA that will drive the transparency, understandability and comparability of information given to investors so they can make informed decisions.

We believe that a foundation of a system of high-quality ESG information is the adoption of global sustainability standards that lead to corporates reporting consistent and comparable ESG information.  This helps to create a baseline layer of high-quality, company-reported information which the rest of the eco-system can rely on to support more efficient markets and more effective decision-making.  We therefore believe this adds to the case for swift and decisive action to bring about global sustainability standards.

We also acknowledge that over time, further measures will be important by way of monitoring and oversight of ESG information and providers. However, we think that this should be balanced against the need to continue to encourage innovation and market developments in a fast-changing market and to meet the evolving needs of retail and institutional investors.  Innovation encourages competition and choice for consumers of these products.  If those customers are well informed, then the market can be an aid in supplying the right products for their needs at the right price. Regulation should not be about eliminating risk from the market, so long as customers are fully aware of the risk they are taking on when making their purchasing decisions.  We therefore think that balanced regulation and voluntary guidance can be useful tools at this stage of the development of the market.

Finally, we strongly encourage the FCA to finalise and publish the outcome of this consultation as soon as practicable, ideally in advance of COP26, which takes place from 1 November 2021, to send the right message to the rest of the world about the UK’s commitment to embracing climate-related disclosures.

Click to view the full comment letter below.

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We comment on the FCA’s consultation paper CP21/17

11 Sep 2021

We have published our comment letter on Financial Conduct Authority’s (FCA's) consultation paper CP21/17 'Enhancing climate-related disclosures by asset managers, life insurers and FCA-regulated pension providers' (“the CP”).

Climate change is a systemic and existential risk, which requires an immediate and urgent response.  We strongly support the UK government’s goal of achieving transparency in business reporting on climate-related issues across the UK economy.  We agree that there is an important opportunity for the UK to establish a pathway towards mandatory reporting around the world via the UK’s G7 Presidency and the 26th UN Climate Change Conference of the Parties (COP26).  We therefore welcome the CP and, consistent with our response to the FCA’s previous consultation paper CP20/3 and linked current consultation paper CP21/18, support the extension of the requirement to report consistently with the Recommendations and Recommended Disclosures of the Task Force on Climate-related Financial Disclosures (TCFD).  We see this as an opportunity for the FCA to take the lead on improving data flow and capital allocation in the investment chain, and to align with other reporting and disclosure requirements.  Done right, the regulatory package will improve the transparency of firms’ commitments at both a corporate and product level, as well as the veracity of any claims made.

Deloitte Touche Tohmatsu Limited’s (DTTL’s) Global CEO, Chairman and CFO are signatories to the statement of support for the TCFD and DTTL is actively involved in its work through Catherine Saire, a member of the TCFD.  TCFD is market-driven and investor-focused and is recognised as an appropriate framework by the International Organization of Securities Commissions (IOSCO) globally and by the European Securities and Markets Authority (ESMA) in the EU.  TCFD is not itself a reporting standard per se but is a positive step towards a comprehensive global system.  Progress, including on standards covering climate, is accelerating, as shown by the recent steps taken by IOSCO and the IFRS Foundation, and we fully support and encourage the development of global sustainability standards which will enhance global comparability and consistency.  We appreciate that the proposals in this consultation represent an interim measure until such a standard is published and encourage the FCA – and the UK government more widely - to adopt and align with any such standard as soon as practicable, and to do all that it can to encourage adoption by jurisdictions around the world, in order to promote consistent and comparable disclosures.

Furthermore, we strongly encourage the FCA to finalise and publish the outcome of this consultation as soon as practicable, ideally in advance of COP26, to give organisations clarity on the regulatory expectations ahead of the proposed implementation date of 1 January 2022.

Click to view the full comment letter.

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EFRAG final comment letter on the IASB's proposed new standard on rate-regulated activities

10 Sep 2021

The European Financial Reporting Advisory Group (EFRAG) has issued its final comment letter in response to the International Accounting Standard Board’s (IASB's) Exposure Draft 'ED/2021/1 Regulatory Assets and Regulatory Liabilities' ("the ED").

The proposed new standard is intended to replace IFRS 14 Regulatory Deferral Accounts.

EFRAG supports the overall objective of the ED but has identified a number of concerns with the proposals which it suggests that the IASB should address before finalising the proposed Standard:

  • ​​Whilst EFRAG considers that there is clarity on the scope of the proposed standard within the utilities sector, it considers that there is less clarity for other sectors.  EFRAG highlights that there is a need for further clarification on entities' scope eligibility and recommends that the IASB consider specific scope exclusions.
  • EFRAG notes some instances where the recognised regulatory assets and regulatory liabilities might not meet the definitions provided in the ED.
  • EFRAG disagrees with paragraph B15 of the ED and recommends that the accounting regulatory returns earned on assets not yet available for use should depend on the economic substance of the regulatory agreement. 
  • EFRAG is aware of situations where the proposed requirements on total allowed compensation under paragraphs B3-B9 related to allowable expenses will not reflect the economic substance of the regulatory agreement and recommends that the IASB further analyses whether the requirements in those paragraphs can be applied across diverse regulatory regimes.
  • EFRAG generally supports the proposed recognition criteria but highlights concerns of its stakeholders regarding high levels of uncertainty and indicates that such stakeholders recommend that the IASB considers a higher recognition threshold for cases of high existence uncertainty.
  • EFRAG supports the proposed cash-flow measurement technique, but disagrees with the proposed new concept of a minimum adequate rate as the discount rate for regulatory assets, when the regulatory interest rate provided is insufficient. EFRAG also disagrees with having different discounting approaches for regulatory assets and regulatory liabilities.
  • ​Whilst EFRAG generally agrees with proposed overall disclosure objective and the proposals for presenting regulatory income and regulatory expense, it recommends that the IASB focus more on the usefulness of the information provided and adopt a more balanced disclosure approach.
  • EFRAG recommends modified retrospective application with exemptions or practical expedients for assets with long useful lives and where backdated CWIP regulatory returns will need to be deferred (should the IASB decide to retain ​this proposal).
  • EFRAG recommends that the effective date should be 24-36 months after the publication of the final standard to allow effective implementation.
  • ​EFRAG recommends the formation of a transition resource group to help with the  implementation of the proposed Standard.

The press release and the final comment letter are available at the EFRAG website.

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Agenda for the September 2021 ITCG meeting

10 Sep 2021

The agenda is available for the next meeting of the IFRS Taxonomy Consultative Group (ITCG), which will be a virtual meeting on 16 September 2021.

The ITCG will discuss the following topics:

  • Review of common reporting practice
  • Digital reporting implications for the Exposure Draft Management Commentary
  • Technology update

The agenda papers for this meeting are available on the IASB website.

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September 2021 IASB meeting agenda posted

10 Sep 2021

The IASB has posted the agenda for its next meeting, which will be held via video conference on 20–24 September 2021. There are seven topics on the agenda.

The Board will discuss the following:

  • Board work plan update
  • Goodwill and impairment
  • Post implementation review of IFRS 9
  • Primary financial statements
  • Dynamic risk management
  • Extractive activities
  • Financial instruments with characteristics of equity

The full agenda for the meeting can be found here. We will post any updates to the agenda, our com­pre­hen­sive pre-meet­ing summaries, as well as observer notes from the meeting on this page as they become available.

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EFRAG calls for an academic study on IFRSs

10 Sep 2021

The European Financial Reporting Advisory Group (EFRAG) is calling for an academic study and literature review on the likely developments in financial reporting.

EFRAG is looking for a holistic assessment of IFRSs (strengths, weaknesses, long-term considerations, topics still to be addressed and European needs and requirements). Applications are welcome by 15 October 2021.

Please click for more information on the EFRAG website.

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FRC Lab publishes survey results and resources on UK Electronic Reporting

10 Sep 2021

The Financial Reporting Lab ("the Lab") has published the results of a survey, launched in May 2021, which sought to understand how prepared companies and service providers were for the introduction of structured electronic reporting for annual financial reports which will be required by Disclosure and Transparency Rule (DTR) 4.1.14.

Last year the Financial Conduct Authority (FCA) delayed, by one year, the mandation of Disclosure and Transparency Rule 4.1.14, which introduced a requirement for companies on a regulated market to publish annual reports in XHTML format.  These requirements now apply for financial years beginning on or after 1 January 2021.    

The survey had 46 respondents and show that UK companies have begun to put the right steps in place to meet the requirements with many having undertaken an analysis of the requirements and identified service providers.  Some remeining actions still remain such as running tests and engagement with the board.

The Lab has also published a list of resources to help companies understand and implement the requirements.  It is also reviewing a set of UK and EU ESEF filings with the aim of publishing a best practice report in autumn.

A press release, the results of the survey and a list of resources are available at the FRC website.

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IFAC calls on stakeholders to prepare now for global sustainability reporting standards

10 Sep 2021

The International Federation of Accountants (IFAC) published a framework for implementing global sustainability standards at the local level. It focuses on the May 2021 'building blocks approach'. IFAC believes that jurisdictions must begin examining how global standards that the envisioned International Sustainability Standards Board (ISSB) would develop can fit together with sustainability-related reporting requirements set at the jurisdictional level.

The ongoing work of the IFRS Foundation is expected to result in first standards in June 2022, including the ISSB climate standard. Jurisdictions that begin engaging with policymakers now will be able to capitalise on the forthcoming standards as soon as they are finalised. IFAC, therefore, urges its member organisations to continue their support for the IFRS initiative, to engage now with local policymakers, and to provide feedback on the framework for making global sustainability standards local.

Please click for more information on the IFAC website.

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Agenda for the September 2021 IFRS Advisory Council meeting

10 Sep 2021

An agenda has been released for the meeting of the IFRS Advisory Council that will be held by remote participation on 13 September 2021.

A summary of the agenda is set out below:

Monday 13 September 2021 (12:00-15:00)

  • Welcome and Chair's preview
  • Updates on Trustees and Board’s Activities
  • Sustainability reporting (approximately two hours of presentation and discussion)
  • Closing remarks

Agenda papers for the meeting are available on the IASB website.

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FRC publishes review findings on SECR

09 Sep 2021

The Financial Reporting Council (FRC) has published the findings of its review of how a sample of companies and Limited Liability Partnerships (LLPs) had complied with the Streamlined Energy and Carbon Reporting Requirements (SECR) which came into effect from 1 April 2019. The review assesses compliance with SECR, identifies emerging good practice and sets out the FRC’s expectations for reporting in future periods.

A sample of 27 entities across a cross-section of industries was selected for review.

The report identified that:

  • Those entities sampled largely complied with the minimum statutory disclosure requirements with all disclosing emissions and the majority disclosing energy use. A number of entity-specific disclosure errors or omissions were identified such as not providing separate sub-totals for scope 1 and 2 emissions or not reporting the proportion of emissions or energy use in the UK and offshore.
  • More needs to be done to make the disclosures understandable and relevant for users. The FRC found that:
    • Reports did not always provide sufficient information about the methodologies used to calculate the emissions and energy use information. In particular, it was not always clear which entities were included in groups’ SECR disclosures.
    • More thought is needed about how to integrate these disclosures with narrative reporting on climate change, where relevant, and make them easier for users to navigate.
    • It was sometimes unclear whether the ratios selected were the most appropriate for the entities’ operations. It was also often not possible to recalculate emissions ratios by reference to other disclosures in the report, for example, emissions per £m revenue.
    • The extent of third party assurance obtained over the SECR information was not adequately explained in most cases.
    • Disclosures about energy efficiency measures did not always clearly describe the ‘principal measures’ taken by the entity in the current year.
  • There were some examples of emerging good practice such as:
    • the disclosure of Scope 3 emissions, information about the use of renewable energy and reporting of both location-based and market-based emissions.
    • Disclosure of emissions reduction targets with better disclosures explaining ‘net zero’/other emission-reduction commitments and strategies with inclusion of details on pathways and interim targets.
    • Reporting in a format consistent with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD) or stating an intention to adopt in the future.

With regards to future reporting the FRC expects preparers to:

  • Present all the required information in a form which is clear, understandable, and easy for users to navigate, using cross-references where relevant information is provided across several parts of the annual report.
  • Provide an adequate explanation of the methodologies used to calculate emissions and energy use. This would include:
    • Which entities have been included in group disclosures.
    • Any other significant policy choices about which emissions are included.
    • Any significant changes in methodology, or any other matters which may affect the comparability of the information disclosed.
  • Provide an explanation or reconciliation where ratios provided cannot be recalculated from, or are apparently inconsistent with, other disclosures in the annual report and accounts.
  • Describe the extent of any due diligence or assurance over emissions and energy use metrics.
  • Provide an adequate description of energy efficiency initiatives in the current and comparative period, focussing on those ‘principal measures’ with the most significant impact.
  • Consider whether any other disclosures, such as Scope 3 emissions, would be helpful to investors or other users.
  • Provide clear explanations which help users to understand and compare major commitments, such as ‘net zero emissions’ targets or ‘Paris-aligned’ strategies, including which activities and emissions are included in the scope of these commitments. This may require the disclosure of additional emissions-related information, beyond the minimum required by SECR.

A press release and the full report are available on the FRC website.  A webinar to discuss the report will be held on October 20.  A press release including details of how to register for the webinar is available on the FRC website.  

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