HLEG questionnaire on interim report

19 Jul 2017

In mid-July, the High-Level Expert Group (HLEG) on Sustainable Finance, established by the European Commission, published a first report setting out concrete steps to create a financial system that supports sustainable investments. The HLEG has now launched a questionnaire aimed at gathering targeted feedback on the analysis and reflections in the interim report and informing the preparation of the final report.

This questionnaire on the report is open from 18 July 2017 through 20 September 2017. It can be accessed here.

ESMA sees room for improvement in the supervision of the enforcement of financial information

19 Jul 2017

The European Securities and Markets Authority (ESMA) has published the results of a review of the supervision of the enforcement of financial information (IFRS) according to the ESMA Guidelines on enforcement of financial information in the EU member states.

The report identifies that further improvements are needed in relation to:

  • how issuers are selected to examine their financial information;
  • the depth of inquiries into financial statements going beyond correcting disclosure; and
  • the financial and human resources allocated to the enforcement of financial information.

The report also notes that five of the jurisdictions – Malta, Portugal, Romania, Sweden, and UK – do not fully comply with the fifth of the final guidelines, which requires that use selection models in which all issuers are eligible to be selected for scrutiny.

Please click for additional information on the ESMA website:

IASB announces fourth research forum

18 Jul 2017

The International Accounting Standards Board (IASB) will host its fourth Research Forum on 28 and 29 November 2017 in Brussels.

The objective is to have 50 academic participants and 50 non-academic participants. The European Accounting Association (EAA), co-host of the forum, has issued invitations to academics and has issued a call for papers. The IASB is now calling for people with backgrounds other than academia to express their interest in attending the event.

Please click for more information and registration on the IASB website.

The Bruce Column — Ensuring Climate-related financial disclosure goes mainstream

18 Jul 2017

The final Report of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures has been published in June 2017. Our regular columnist Robert Bruce reports on its recommendations and how it is likely to move this issue into the mainstream.

The focus on climate-related concerns has changed. It has moved away from simple worries about global resources to a much more tangible concern about risks and opportunities. The final report from the Financial Stability Board’s Task Force on Climate-related Financial Disclosure is expected to change attitudes to the quality of and responsibility for climate-related corporate reporting fundamentally. The old idea that such issues can be downplayed as simply high-minded concerns rather than being seen as the arena for serious risk assessment and resulting action will then, in turn, change. The report focuses on the information that investors need.

It starts from the position that climate-change risks are one of ‘the most significant, and perhaps most misunderstood, risks that organisations face today’. Its recommendations and disclosures aim to ensure that investors, lenders and insurance underwriters are provided with a full understanding of those risks. And while the disclosure recommendations may be voluntary the clear expectation is that momentum and the market will demand their implementation.

The task force makes it clear that its recommendations ’aim to be ambitious, but also practical for near-term adoption’. The report says that organisations already reporting climate-related information should be able to implement the recommendations ‘immediately’ and are ‘strongly encouraged to do so’. Others can begin ‘by disclosing climate-related issues as they relate to governance, strategy, and risk management practices’. The report says the task force ‘recognises that this may be challenging but believes that by moving climate-related issues into mainstream annual financial filings, practices and techniques will evolve more rapidly’.

There are four fundamental areas of disclosure. First an organisation’s governance around climate-related risks and opportunities, then the actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy and financial planning. Thirdly the processes used by the organisation to identify, assess, and manage climate-related risks; and finally the metrics and targets used to assess and manage relevant climate-related risks and opportunities.

The report highlights that the task force ‘expects the governance processes for these disclosures would be similar to those used for existing public financial disclosures and would likely involve review by the chief financial officer and audit committee, as appropriate’. In other words the disclosures are clearly tied to the more general responsibility to present a clear, balanced and understandable discussion by publicly-listed organisations. The disclosure of climate-related risks and opportunities is firmly placed in mainstream financial reporting.

Support has been swift from the asset owners and asset managers’ community. And it is clear they intend driving a swift and widespread adoption of the framework. For example, Stuart Gulliver, CEO at HSBC, said that: ‘These recommendations are very welcome. The impact of climate change and the transition to a lower-carbon economy deserve board-level scrutiny and governance. Independent research commissioned by HSBC shows that less than a quarter of companies currently disclose their environmental impact. This makes it very difficult for analysts and investors to assess and compare how sustainable these companies are. These recommendations are a practical and pragmatic response to the need for consistent and comparable climate-related financial disclosure’.

More than a hundred firms around the world with a total market cap of some $3.3 trillion have agreed to actively support implementation and encourage others to do so. The task force will remain in place until at least September 2018 to promote and monitor adoption and to evaluate ‘the extent to which the recommended disclosures are meeting the interests of users’. With the backing it has, the move mainstream of climate-related financial disclosure is well under way.

FSB issues statement in support of IFRS 17

17 Jul 2017

The Financial Stability Board (FSB) has issued a statement welcoming the IASB's new insurance accounting standard.

The statement is little more than an announcement that IFRS 17 Insurance Contracts is now available but also notes:

Nevertheless, the FSB encourages firms to start the implementation efforts as soon as possible, and to engage in open dialogue with the IASB on the ways in which the standard’s application can generate the most relevant information.

Please click for the statement on the FSB website.

IFAC and CIPFA announce public sector accountability index

17 Jul 2017

The International Federation of Accountants (IFAC) and the Chartered Institute of Public Finance and Accountancy (CIPFA) have announced that they have begun building up an index that will reflect the extent of accrual accounting and adoption of International Public Sector Accounting Standards (IPSASs) around the world.

The index will initially be populated with research data on individual countries and regions, collected by various international institutions. National standard-setters will be invited to review, comment upon, and supplement the information, after which the first set of data will be made available in November 2017.

Please click for more information on the IFAC website.

European Commission text with "top up" regarding IFRS 4 amendments

14 Jul 2017

The European Commission has made available the text sent to the European Parliament and the Council of the European Union regarding the endorsement of 'Applying IFRS 9 'Financial Instruments' with IFRS 4 'Insurance Contracts' (Amendments to IFRS 4)'. The text includes a "top up" that would allow a financial conglomerate to elect that none of its entities operating in the insurance sector apply IFRS 9 in the consolidated financial statements for financial years the commencement of which precedes 1 January 2021 where certain conditions are met.

The conditions are set out in Article 2 of the text, which can be accessed here in all official EU languages.

The EFRAG has updated its endorsement status report to include a link to the document.

EU High-Level Expert Group on Sustainable Finance delivers early recommendations

14 Jul 2017

The High-Level Expert Group (HLEG) on Sustainable Finance, established by the European Commission, has published its first report setting out concrete steps to create a financial system that supports sustainable investments. Special significance is placed on the integration of information for investors and integrated reporting is cited as key to the ultimate ambition of convergence to low-carbon growth.

The report argues that sustainability needs to be put at the heart of the financial system and that to deliver systemic change, ESG factors and long-term sustainability risks and opportunities will be needed in corporate governance, core indices, accounting standards and credit ratings.

The authors note that the time horizon in finance is typically much shorter than the time horizon needed to address society’s pressing challenges; and the conception of risk in finance is typically much narrower than one that effectively captures economic, social and environmental sustainability. The resulting mismatch of time horizons would make certain social and environmental issues (such as resource depletion, which are likely to materialise only in the long term) become ‘externalities’ that are deemed ‘not material’ for financial markets and are thus not sufficiently accounted for by asset owners and managers.

However, the report states, social and environmental issues do have financial consequences in the real economy and for end-beneficiaries and should be accounted for. On accounting frameworks, the authors note:

While there are numerous initiatives on sustainability reporting, the ultimate ambition has to be the convergence of financial and sustainability information, supported by a more comprehensive set of accounting standards. Integrated reporting supports this convergence qualitatively through reporting that links sustainability factors with firms’ strategy. Accounting standards can help advance the quantitative element.

The report is aimed at readers in Europe and beyond, who are concerned about issues of sustainability, financial markets and the wider challenges for society. It is intended to provide the basis for fruitful and constructive consultations as the HLEG engages in the next phase of its work. The HLEG welcomes comments, questions and discussions during the process of preparing its final report for publication in December 2017.

Please click to access the full report on the European Commission website.

EBA reports on results of the second impact assessment of IFRS 9

14 Jul 2017

The European Banking Authority (EBA) has published a report on the results of its second impact assessment of IFRS 9 'Financial Instruments'. For the report, EBA looked at a sample of approximately 50 institutions across the European Union.

The exercise, which follows up on the first impact assessment published in November 2016, has confirmed the EBA's initial observations on the stage of preparation for the implementation of IFRS 9 and the estimated impact of IFRS 9 on regulatory own funds.

On the qualitative side, the report highlights that banks have made further progress on the implementation of IFRS 9 since the previous exercise, but smaller banks are still lagging behind in their preparation compared with larger banks. On the quantitative side, the responses received show that the estimated impact of IFRS 9 is mainly driven by IFRS 9 impairment requirements. The estimated increase of provisions is on average 13% compared to the current levels of provisions under IAS 39.

The full report can be accessed on the EBA website.

In parallel, the EBA also launched a public consultation on its guidelines on uniform disclosure of IFRS 9 transitional arrangements to ensure institutions' Pillar 3 disclosures on capital and leverage ratios are consistent across the EU during the transitional period. More information is available here.

Recent sustainability and integrated reporting developments

13 Jul 2017

A summary of recent developments at GRI, Accountancy Europe and WBCSD.

The Global Reporting Initiative (GRI) has published a summary of a GRI and World Federation of Exchanges (WFE) co-hosted round-table discussion on 7 June in London. Sharing their views on environmental, social and governance (ESG) reporting challenges, participating reporters, investors and exchanges indicated three ways to facilitate streamlined ESG reporting: (i) greater engagement between investors and reporters, (ii) report once, use several times, and (iii) guidance on available ESG frameworks and how to use them. Please click for the summary on the GRI website.

GRI also announces that the GRI Standards GRI Standards are now available in traditional Chinese, Bahasa Indonesia, and Vietnamese. Please click for access to the translations.

GRI and Accountancy Europe announce a publication EU Directive on Non-financial and Diversity Information: A comprehensive guide to the national laws that will be available in fall 2017. Please see the announcement here.

Accountancy Europe announces an event 'Shaping the future of corporate reporting' on 18 September 2017 in Brussels to further develop some of the points put forward in its 2015 CORE & MORE discussion paper. Registration for the event is available through the press release on the Accountancy Europe website.

The World Business Council for Sustainable Development (WBCSD) and the Natural Capital Coalition have launched the "Natural Capital Protocol Toolkit", a new resource to help businesses address natural capital depletion by improving understanding, measurement and decision-making. More information is available here.

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