More than 6,500 ICAEW members are located in the European Economic Area and potentially subject to European Sustainability Reporting Standards (ESRS), alongside certain UK companies that fall within its scope.

ICAEW reiterated its support for the ambitions of the European Green Deal and the provisions set out in the Corporate Sustainability Reporting Directive. However, it pointed out that the rapid pace of development of the ESRS has resulted in flaws that could undermine Green Deal objectives.

The principal purpose and objectives of ESRS are not easily understood, said ICAEW, due to prescribed information with limited value for decision-making; contradictions and ambiguities within the standards; overly detailed requirements that do not seem to align with public messaging on interoperability; and a lack of clarity over key aspects of the double materiality requirements. The European Financial Reporting Advisory Group’s (EFRAG) standard-setting process has been unduly rushed up to this point and there hasn’t been sufficient time to properly consider stakeholder feedback.

ISSB as a baseline 

ICAEW has called strongly for ESRS to align with and build from the International Sustainability Standards Board’s (ISSB) standards, with amendments and additions made for requirements over and above that global baseline.

“We believe that full alignment with ISSB standards would have numerous benefits,” said Dr Nigel Sleigh-Johnson, ICAEW’s head of corporate reporting, audit and assurance. “It would remove duplication of effort in standard-setting and allow EFRAG time to focus on addressing the most challenging provisions, including the application of double materiality. It would also enable high-quality standards to be developed at speed, without placing an undue burden on in-scope companies, thereby supporting the competitiveness and attractiveness of businesses operating in the EU.”

Incorporating the work already conducted by the ISSB should also help to address the challenges and complexity involved in developing a set of standards that will have applicability outside the EU, he added.

Additional ESRS requirements over and above the ISSB global baseline could be explicitly identified in the standards, which would help to reduce unnecessary global divergence and inefficient reporting practice.

“While interoperability is important, in our view equivalence should be the ultimate aim, and is crucial for building stakeholder trust in global sustainability reporting,” said Sleigh-Johnson. “We therefore support calls for the European Commission to prioritise the work needed to enable equivalence to be possible.”  

ICAEW recognises the pressure on EFRAG to deliver a fast-tracked workplan and accepts it will need to define and apply due process procedures that are appropriate to these circumstances. ICAEW emphasised that these procedures must include clear markers of quality (including a full public consultation and careful consideration of stakeholder feedback) that are not circumvented in order to meet strict deadlines.

“The success of any reporting standard relies on the confidence of stakeholders in a standard-setting process, which should result in reporting that is proportionate and beneficial to users,” said Sleigh-Johnson in the response. “This is essential to ensure that stakeholders are fully engaged and that the final standards are high quality.”

• Download ICAEW’s response in full