July 7, 2021
The FRC has today published the FRC Statement of Intent on Environmental, Social and Governance challenges. This paper sets out areas in which there are issues with ESG information if companies are to report in a way that meets the demands of stakeholders, how to address some of these demands and the FRC’s planned activities in this area.
There is an ever-increasing amount of regulatory change, and as these changes are implemented, there remain a range of underlying issues with the production, audit and assurance, distribution, consumption, supervision and regulation of ESG information. In the FRC’s view, we need better:
· Production – to ensure that better internal information leads to better decisions and better insight for stakeholders
· Audit and Assurance – so that the reported information is robust and reliable
· Distribution – so that information is made accessible to interested parties
· Consumption – to ensure this information leads to better decision making by stakeholders
· Supervision – so that information and activity is appropriately monitored and requirements are enforced
· Regulation – as coordinated and coherent regulation leads to efficiency
The FRC supports global standards for non-financial reporting and welcomes the activity of the IFRS Foundation Trustees to set up an International Sustainability Standards Board. Last year the FRC announced an expectation that public interest entities should report against the Task Force on Climate-related Financial Disclosures framework and the Sustainability Accounting Standards Board (SASB) sector-specific metrics relevant to the entity as building blocks towards this international approach and to assist investors to understand material ESG issues at companies. The FRC has assessed UK SASB reporting practice and today also publishes a snapshot of market practice, showing an increase in uptake, but that more and better reporting is needed.
As we work towards a more effective system of production, audit and assurance, distribution, consumption, supervision and regulation, the FRC will work within its remit and with standard setters, regulators, market participants and other stakeholders to build a system that is forward-looking and fit for purpose.