The International Corporate Governance Network (ICGN), in response to the European Commission’s draft Delegated Regulation for sustainability reporting standards, has conveyed its full endorsement via a published letter. The key points of agreement encompass five main areas:
CSRD – A New Paradigm for Corporate Reporting
ICGN applauds the Corporate Sustainability Reporting Directive (CSRD), responding to investors’ demand for consistent, reliable, and confirmable corporate sustainability disclosures. These disclosures are essential for informed stewardship, investment, and risk management decisions, along with fulfilling reporting obligations. The Global Governance Principles by ICGN, serving as a comprehensive framework for governance information, have also been referenced in the CSRD, a move ICGN appreciates.
Materiality Assessments – A Central Role
ICGN commends the European Financial Reporting Advisory Group (EFRAG) and the European Commission for centering materiality assessments. Recognized as a foundational concept in financial reporting, it aligns with international responsible business conduct standards such as the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights. The International Sustainability Standards Board (ISSB) also follows this approach. The expectation is for companies to perform materiality assessments in an earnest, comprehensive, and ethical manner, with board supervision and transparency for users.
SFDR – Investor’s Dependence on Disclosures
The Sustainable Finance Disclosure Regulation (SFDR) is a significant concern for investors, who rely heavily on corporate disclosures for their own reporting under SFDR. Non-disclosure of crucial elements by companies, post their materiality assessment, could pose challenges for investors.
Climate Change – Advocating Mandatory Reporting
ICGN suggests that the European Commission continue to enforce the mandatory reporting of vital climate indicators and transition plans. In the context of the EU’s climate commitments, this reporting is seen as essential and should be mandatory for most companies across sectors under the double materiality approach. Investors need these disclosures for assessing their portfolio’s carbon footprint.
Interoperability – A Call for Transparency
ICGN calls on ISSB and the Commission to publicize their detailed mapping that compares the similarities and differences between the two sets of standards. This transparency could prove beneficial for regulators, companies, advisers, and auditors alike.
