The EU Accounting Directive (as amended by the Corporate Sustainability Reporting Directive (CSRD)) requires large companies and listed small and medium-sized companies, as well as parent companies of large groups, to include in a dedicated section of their management report the information necessary to understand the entity’s impacts on sustainability matters, and the information necessary to understand how sustainability matters affect the company’s development, performance and position.

The Commission was required to adopt the first set of sustainability reporting standards specifying the information that companies are to report in accordance with the CSRD. EFRAG developed draft European Sustainability Reporting Standards (ESRS) and submitted them to the Commission in November 2022 in the form of technical advice. The Commission considered these and feedback from various European agencies and other stakeholders and launched a consultation on a draft delegated regulation supplementing the European Accounting Directive as regards sustainability reporting standards in June 2023.

To ensure proportionality and to facilitate the correct application of the standards by undertakings, the Commission introduced modifications to EFRAG’s technical advice with regard to the materiality approach, the phasing-in of certain requirements, the conversion of certain requirements into voluntary datapoints, the introduction of flexibilities in a number of disclosure requirements, the introduction of technical modifications to ensure coherence with the EU’s legal framework and enhance interoperability with global standard-setting initiatives, as well as editorial modifications.

The Commission has now adopted its final delegated act. The ESRS to be used by entities for their sustainability reporting are set out in Annex I and Annex II of the draft regulation.

The regulation would enter into force four months after the date of adoption. The regulation, and therefore the ESRS, would apply from 1 January 2024 for financial years beginning on or after 1 January 2024. The regulation would be binding in its entirety and directly applicable in all member states.

Please click for access to the adopted final delegated act and its annexes through this European Commission website (scroll down to "Commission adoption") - this page also offers access to translations of the texts into the other official European languages. A question and answer document on the ESRS is also available.

In statement on its website, IOSCO has welcomed the publication of the ESRS "and, in particular, the announcement by the European Commission that it has integrated the ISSB Standards into them."

The IFRS Foundation has also published a statement commenting especially on interoperability. It notes:

The European Commission, EFRAG and the ISSB have worked jointly to improve the interoperability of their respective climate-related disclosure requirements in the overlapping climate disclosure standards.  This work has successfully led to a very high degree of alignment, reduced complexity and duplication for entities wishing to apply both the ISSB Standards and ESRS.

EFRAG is alsready working on an IFRS-ESRS mapping table that is available in draft version on the EFRAG website.

The ESRS delegated act adopted by the Commission today will be formally transmitted in the second half of August to the European Parliament and to the Council for scrutiny. The scrutiny period runs for two months, extendable by a further two months. The European Parliament or the Council may reject the delegated act, but they may not amend it.

For more information, see Deloitte's iGAAP in Focus newsletter.

The 25-minute webcast offers examples of connected and complementary work between the two boards. The collaborative work is aimed at facilitating holistic, comprehensive and coherent information in companies’ financial reports.

The webcast can be accessed through the press release on the IFRS Foundation website.

Below is an analysis of all changes made to the work plan since our last analysis on 27 June 2023.

Stan­dard-set­ting projects

• Amendments to climate-related SASB Standards — This project has been removed from the work plan since the final amendments were included when IFRS S2 was issued.
• Equity method — An exposure draft is now expected in H2 2024 (pre­vi­ously 2024).
• International applicability of the SASB standards — Feedback on the exposure draft will now be discussed in September 2023 (previously Q3 2023).
• Management commentary — A decision on the project’s direction is expected in Q4 2023 (previously H2 2023).

Main­te­nance projects

• Amend­ments to the classification and measurement of financial instruments — Feedback on the exposure draft is now expected to be discussed in September 2023 (pre­vi­ously Q3 2023).
• Annual Improvements to IFRS Accounting Standards — Exposure drafts for the following are now expected in September 2023 (previously Q3 2023):
  • Cost Method (Amendments to IAS 7)
  • Credit Risk Disclosures (Amendments to Illustrative Examples accompanying IFRS 7)
  • Determination of a ‘De Facto Agent’ (Amendments to IFRS 10)
  • Disclosure of Deferred Difference Between Fair Value and Transaction Price (Amendments to Illustrative Guidance accompanying IFRS 7)
  • Gain or Loss on Derecognition (Amendments to IFRS 7)
  • Hedge Accounting by a First-time Adopter (Amendments to IFRS 1
  • Lessee Derecognition of Lease Liabilities (Amendments to IFRS 9)
  • Transaction Price (Amendments to IFRS 9)
• Climate-related risks in the financial statements — the research review is expected in September 2023 (previously Q3 2023)
• Provisions — Targeted Improvements — A decision on the project’s direction is expected in Q4 2023 (previously H2 2023)

Research projects

• Business combinations under common control — A decision on the project’s direction is expect in September 2023 (pre­vi­ously Q3 2023).
• Extractive activities — A decision on the project’s direction is expect in September 2023 (pre­vi­ously Q3 2023).
• Post-implementation review of IFRS 15: Revenue from Contracts with Customers — After publishing the request for information on 29 June 2023, the next expected project step will now be the discussion of the feedback received (expected in H1 2024).

Strategy and Governance

• ISSB consultation on agenda priorities — Feedback on the request for information is expected in Q4 2023 (previously H2 2023)

Other projects

• IFRS Accounting Taxonomy Update — Amendments to IAS 12, IAS 21, IAS 7 and IFRS 7 — The proposed IFRS Taxonomy update is expected in September 2023 (previously Q3 2023).
• IFRS Sustainability Disclosure Taxonomy — After publishing the proposed taxonomy on 27 July 2023, the next expected project step will now be the discussion of the feedback received (expected in Q4 2023).

The above is a faithful com­par­i­son of the IASB and ISSB work plan at 27 June 2023 and 28 July 2023. For access to the current work plan at any time, please click here.

The closing date for applications of new members is 15 September 2023. New members will be appointed for an initial term lasting between two to five years.

The new members already appointed are Sallie Deysel, Maria Alejandra Hryszkiewicz and Nico Wegmann.

For more information, see the press release on the IFRS Foundation website.

The proposed taxonomy reflect the disclosure requirements in the ISSB’s first two Standards — IFRS S1 and IFRS S2.

More details are available in the press release and the taxonomy page on the IFRS Foundation website. Comments are requested by 26 September 2023.

The first new standard will result from the primary financial statements project and will supersede IAS 1 Presentation of Financial Statements. The second new standard will result from the project on subsidiaries without public accountability and is intended to reduce disclosure requirements for subsidiaries that are not traded on a public market.

The IASB expects to issue the new standards in the first half of 2024 and the effective date of both new standards will be for annual reporting periods beginning on or after 1 January 2027.

Please click to see the announcement on the IFRS Foundation website.

The FRC’s review analysed TCFD disclosures from 20 companies' 2022 annual reports across four sectors: materials and buildings, energy, banks, and asset managers. It found:

• There is an incremental improvement in the quality of companies' disclosure of net zero commitments and interim emissions targets.
• Disclosures of concrete actions and milestones to meet targets were sometimes unclear, and comparability of metrics between companies remains challenging.
• Given the large volume of information presented, many companies are finding it challenging to explain their plans for transitioning to a low-carbon economy clearly and concisely. 
• Explanations of how climate targets affect financial statements still need improvement.

The full review is available on the FRC website.

In its draft comment letter, EFRAG notes that the requirements in IFRS 15 generally work as intended.

Nevertheless, EFRAG identifies some application challenges that should be further considered by the IASB in the context of this project. These include:

• challenges in determining whether a reporting entity is a principal or an agent;
• challenges in accounting for contracts involving licences;
• challenges of applying the requirements of IFRS 15 along with the requirements of IFRS 3, IFRS 16, IFRS 10, and IFRS 11;
• challenge of identifying performance obligations related to contracts with upfront fees, pre-production services, and those involving licences; and 
• challenge in determining the transaction price in respect of the requirements for the estimation of variable consideration and the treatment of ‘negative’ revenue.

Comments on EFRAG's draft comment letter are requested by 11 October 2023. For more information, see the press release and the draft comment letter on the EFRAG website.

IOSCO has engaged extensively with the ISSB over the last two years during the development of IFRS S1 and IFRS S2, culminating in a comprehensive and independent review of the final standards. After a detailed analysis, IOSCO has determined that the ISSB standards are appropriate to serve as a global framework for capital markets to develop the use of sustainability-related financial information in both capital raising and trading and for the purpose of helping globally integrated financial markets accurately assess relevant sustainability risks and opportunities.

IOSCO now calls on its 130 member jurisdictions, regulating more than 95% of the world's financial markets, to consider ways in which they might adopt, apply or otherwise be informed by the ISSB standards within the context of their jurisdictional arrangements, in a way that promotes consistent and comparable climate-related and other sustainability-related disclosures for investors.

In a statement by the Chair of the IFRS Foundation Trustees, Erkki Liikanen noted that, '[w]e owe a debt of gratitude to IOSCO, and to its Chair Jean-Paul Servais, for recognising the importance of unifying behind these Standards. They will enable investors to factor sustainability-related risks and opportunities into their decision making'.

The following additional information is available on the IOSCO website:

• Press release
• Endorsement Decision
• Endorsement Technical Assessment
• Presentation used by the IOSCO Chairman during the announcement
• Links to social media activity

The IFRS Foundation has responded with a press release and by publishing a high-level roadmap providing transparency around the IFRS Foundation and the ISSB’s strategy to support jurisdictional adoption.

The following topic is on the agenda:

Foundational work: The ISSB has committed to researching targeted enhancements to the IFRS Sustainability Disclosure Standards—specifically, the ISSB said that this work could enhance the application of IFRS S2 by providing guidance for the disclosure of climate-adjacent risks and opportunities related to nature and the ‘just transition’ to a lower-carbon economy. The staff recommends developing targeted educational material to explain and illustrate how an entity might apply some of the existing requirements in IFRS S2 to disclose information about particular nature and social aspects of climate-related risks and opportunities.

Our pre-meet­ing summaries is available on our July meeting notes page and will be sup­ple­mented with our popular meeting notes after the meeting.