In 2024, the European Union will implement groundbreaking mandatory corporate sustainability reporting standards, requiring companies to disclose environmental, social, and governance (ESG) aspects. The rules apply to major EU companies and foreign companies with significant regional presence. Despite the EU’s initiative, uncertainties exist regarding alignment with international standards and the adoption of similar approaches by non-EU countries.
The International Sustainability Standards Board (ISSB) also introduces disclosure guidelines in January 2024. Currently, Brazil is the only country with concrete plans to adopt ISSB standards, while the UK, Australia, and Japan are contemplating their inclusion in national frameworks. The aim is to enhance consistency in sustainability disclosures for better investor comparisons globally.
Concerns arise about potential dual reporting obligations for multinational companies as different countries develop their own reporting requirements. To address this, the European Financial Reporting Advisory Group (EFRAG) is in discussions with non-EU counterparts to encourage convergence. The challenge lies in coordinating EU reporting standards with ISSB requirements, with potential solutions including digital tagging for investors to distinguish global disclosures.
While the EU’s broad reporting requirements cover diverse ESG issues, the ISSB’s initial standards focus on climate and general sustainability reporting. There’s an ongoing effort to align these standards for interoperability, but challenges remain in spotting ISSB disclosures within comprehensive EU reports. Both entities express support for a global baseline, and efforts are underway to facilitate harmonization.
Countries like the UK, Japan, and Australia are developing their own reporting standards, with varying degrees of alignment with ISSB rules. The UK government intends to recommend ISSB reporting standards if approved nationally, Japan is in line with ISSB’s approach, and Australia is pursuing alignment with the ISSB.
Beyond the EU, other nations are exploring comprehensive reporting requirements, influenced by the EU’s leadership. The EU’s influence in shaping international reporting standards is notable, given its previous success with financial reporting rules from the International Accounting Standards Board.
The ISSB, formed in 2021, faces the challenge of expanding its standards to cover additional disclosure areas, including biodiversity. The sustainability board looks to build on existing frameworks, with EU reporting serving as a potential model for future developments.
In summary, the EU’s corporate sustainability reporting standards starting in 2024 mark a significant step, but challenges and uncertainties persist in aligning with international standards and encouraging global adoption. The ISSB and EU are working towards harmonization, while other countries contemplate their own reporting frameworks influenced by these initiatives.
By FCCT Editorial Team
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