EU: EFRAG Publishes Draft Implementation Guidance for European Sustainability Reporting Standards
On December 22, 2023, the European Financial Reporting Advisory Group (“EFRAG”) published three implementation guidance drafts for the European Sustainability Reporting Standards (“ESRS”), which in-scope companies will use to comply with reporting obligations under the Corporate Sustainability Reporting Directive. EFRAG published the following drafts:
- Draft EFRAG IG 1, the materiality assessment implementation guidance (“MAIG”);
- Draft EFRAG IG 2, the value chain implementation guidance (“VCIG”); and
- Draft EFRAG IG 3, a list of detailed ESRS datapoints.
The MAIG describes the reporting requirements regarding the materiality assessment, which is the process by which companies will determine what sustainability impacts, risks, and opportunities are material and thus reportable. MAIG also sets out answers to frequently asked questions about the double materiality assessment.
The VCIG details a company’s reporting requirements across its value chain for the purpose of its sustainability statement. The VCIG includes guidance on the reporting boundary and answers to frequently asked questions. The value chain map in the VCIG sets out disclosure requirements in the sector-agnostic ESRS and provides guidance on whether value chain information must be reported.
Finally, the draft EFRAG IG 3 sets out the specific datapoints required by each ESRS standard. EFRAG notes that the list may be used as the basis for a data gap analysis.
The drafts are open for public consultation until February 2, 2024.
MAIG and Corresponding Survey
VCIG and Corresponding Survey
ESRS Datapoints, Accompanying Explanatory Note, and Corresponding Survey
Global: ISS Governance Publishes 2024 Updates to Benchmark Proxy Voting Policies
On December 19, 2023, ISS Governance announced a series of updates to its benchmark proxy voting policies in advance of the 2024 proxy season. The service, which covers over 50,000 corporate meetings each year, remains a key tool for institutional investors around the world.
The annual benchmark updates are designed to reflect market-specific changes to regulations and best practices, as well as market needs based on investor feedback. For example, the benchmark in Canada has been updated to reflect new securities exchange rules on director diversity and compensation that will take effect in 2024. Similarly, the benchmark’s recommendations on Japanese “poison pill” takeover defense plans and director reelection votes have been altered to reflect changing market conditions. For the United States, the sole update concerns a standardization of the benchmark’s treatment of “golden parachute” executive severance agreements.
In public comments on a preliminary draft of the new policies, several investors called for ISS to strengthen its position on climate change accountability and on racial justice topics. Investors also asked ISS to adjust its benchmarks to endorse greater corporate tax transparency, particularly on the subject of country-by-country reporting. Though ISS did not make these requested changes, it did note the feedback in the summary of the updates.
The updated proxy voting benchmark policies will apply for shareholder meetings taking place on or after February 1, 2024.
Summary of Updates
Global: GRI Publishes Tool to Help Transition to European Sustainability Reporting Standards
In December 2023, the Global Reporting Initiative (“GRI”), an international independent standards organization, published a mapping tool that identifies the overlap between existing GRI standards and the European Sustainability Reporting Standards (“ESRS”) to assist in-scope companies with compliance. This tool will allow companies that already adhere to the GRI sustainability standards to repurpose the data collected in connection with those reporting standards for compliance with the forthcoming ESRS reporting obligations.
The Corporate Sustainability Reporting Directive, which requires EU and certain in-scope non-EU companies to file annual sustainability reports alongside their financial statements in accordance with ESRS, takes effect in the 2024 reporting period. The reporting obligations cover a broad range of ESG topics including climate change, biodiversity, resource use, pollution, and water and marine resources.
GRI will update the mapping tool in 2024 to align with the final list of ESRS datapoints.
GRI Mapping Tool