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Trouble brews in Europe over increased sustainability legislation, Australia moves forward on draft climate disclosure standards, New Zealand’s climate-related disclosure standards now in force and, in the US, higher interest rates lead to refinancing questions for non-financial institution owners of commercial real estate.


EU faces a backlash against sustainability regulations burden

With elections approaching against a backdrop of a subdued economic outlook and growing popular discontent, malaise has descended upon Brussels. EU policymakers have been trying to finalise as much pending legislation as possible before the end of the current legislative term, while navigating an increasingly vocal backlash against the green transition. A visible manifestation of this has been the 11th-hour change of heart on the (almost-agreed) Corporate Sustainability Due Diligence Directive

For corporate reporting, there has been some slowdown in the phasing in of the Corporate Sustainability Reporting Directive (CSRD), presented as a way to limit reporting requirements while giving companies more time to apply the first wave of European Sustainability Reporting Standards (ESRS). Time limits for the adoption of ESRS for certain sectors and for large non-EU companies have been delayed by two years, with adoption now scheduled for June 2026. The date of application for third country companies, however, remains the same as set out in the CSRD (ie, financial year 2028). Nonetheless, the development of standards for both listed SMEs (mandatory) and other SMEs (voluntary) continues, with exposure drafts released for feedback earlier this year. A draft XBRL taxonomy for ESRS has also been published. 

The European Financial Reporting Advisory Group (EFRAG) continues work to support implementation of ESRS, including the imminent publication of the first set of non-binding implementation guidance documents addressing the materiality assessment, value chain aspects and ESRS data points. Quarterly technical explanations are also being issued by EFRAG relating to some of the questions submitted on its ESRS Q&A Platform.

Despite attracting less attention, EFRAG remains engaged with developments in IFRS Accounting Standards, including outreach activities on the International Accounting Standards Board’s Exposure Draft Financial Instruments with Characteristics of Equity plus the post-implementation review of IFRS 16 Leases.

With an eye on the new legislative term, recommendations on how to deepen the EU’s single market and ideas on how to enhance Europe’s economic competitiveness are multiplying. European business associations, including Accountancy Europe, are calling for the focus to be on limiting the mounting compliance costs, reporting requirements and increasing cross-border fragmentation facing European companies. With the EU collectively needing to dig deep to mitigate the competitiveness (and investment) gap with global counterparts, politicians are likely to be receptive to any suggestions on how to boost economic growth, including reducing so-called regulatory burdens.

Australia and New Zealand

Australia issues draft climate disclosure standards, while New Zealand entities publish first climate statements

Following public consultation, on 27 March 2024, the Australian Government introduced legislation to Parliament to mandate climate-related disclosures (a 2022 election promise). This followed their policy position statement published in January. It will apply to large listed and private companies as well as certain not-for-profit entities and large emitters. There are three intended cohorts, with the largest companies commencing from 1 January 2025 and all from 1 July 2027.

The Australian Accounting Standards Board (AASB) is to set the standards for disclosure, which are to be aligned with International Sustainability Standards Board (ISSB) standards as applicable to climate, including scope 3 emissions from the second year. The AASB released exposure draft (ED) standards in late 2023. There are some key differences between the AASB draft standards and the ISSB standards as well as between the Treasury’s policy position statement and the AASB ED. These include making industry metrics voluntary, not including references to SASB Standards and removing the requirement to consider the industry-based guidance accompanying IFRS S2 Climate-related Disclosures. In addition, entities are required to use the Australian National Greenhouse and Energy Reporting scheme for greenhouse gas emissions measurement unless it is not practical to do so.

The Australian Treasury has also consulted on a broader sustainable finance strategy, including signalling that it is climate first, not climate only and also its interest in the work of the Taskforce on Nature-related Financial Disclosures.

In New Zealand, the first statements under its Climate Standards regime are just beginning to be published on the register of Climate Reporting Entities and we expect to see more released in the coming months. The External Reporting Board (XRB) is currently establishing a Sustainability Reporting Board and has commissioned work on a sustainability reporting framework for Māori entities.

Karen McWilliams, Sustainability and Business Reform Leader, Chartered Accountants Australia and New Zealand

United States

Refinancing questions loom for non-financial institution owners of commercial real estate

In the United States, commercial real estate (CRE) is in the news on a daily basis. CRE in the form of large office buildings tends to make the headlines, but the term also includes industrial/factory buildings, multi-family apartments and retail property.

Reports estimate trillions of dollars’ worth of debt on CRE is due for refinancing in the coming years, with interest rates much higher now than when the debt was established or last refinanced. Fundamentally, the question for non-financial institution owners of CRE is: do the cash flows and related valuation of the underlying property justify the cost of refinancing at a much higher rate than before, or is it better to minimise the losses and to hand over the keys of the property to the lender? 

For accountants and auditors of CRE owners, key areas of focus include: 

  • valuations and impairment of CRE; 
  • CRE owners granting various forms of concessions to tenants; and 
  • debt accounting when owners receive concessions from its lender.

Overlaying it all is the old adage “all real estate is local”. For example, one city/town may have a robust CRE market, while another less so. Sometimes it is even more local – experts use the example of a class A, top-notch Manhattan office building being at full occupancy whereas another similar-sized office building just a few doors down has low occupancy and is struggling to justify refinancing at current interest rates.

Dan Noll CPA, Director of Accounting Standards, Association of International Certified Professional Accountants

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