10 May 2023 17:10

Transition to global ESG disclosure standards will be a challenge for Russian companies, the Central Bank believes

MOSCOW. May 10 (Interfax) - The upcoming gradual transition to the use of global standards developed by the IFRS Foundation will be the main challenge for Russian companies publishing sustainability reports, said Andrey Yakushin, head of the Corporate Relations Development Department of Russia's Central Bank.

Survey data published by the Central Bank suggests that Russian companies now mainly use international GRI standards to disclose ESG information.

The new unified international standards, which are scheduled to be published in June, provide for mandatory disclosure by companies of information for Scope 2, that is, on greenhouse gas emissions associated with the purchase of energy and heat, and in the future - throughout the entire supply chain and consumption of goods and services (Scope 3), Yakushin said. Russian companies will have a question about how to calculate Scope 2, he said at the "Non-financial reporting for 2022: challenges and solutions" seminar organized by the Integrated Reporting Committee and the Higher School of Economics.

In addition, international approaches, both in the case of existing TCFD standards and new IFRS standards, suggest that ESG data is de facto financial information, because indicators that are included in sustainability reporting affect the financial performance of companies. "One of the key points and one of the difficulties of this sort of disclosure is to show exactly how non-financial indicators, and how the company manages ESG risks and opportunities, affect financial performance," Yakushin said.

The IFRS Foundation positions the standards, which are being prepared for publication in their final form, primarily as information for investors, he noted. Meanwhile, the Central Bank's 2021 recommendations on non-financial reporting are based on the principle of double materiality, which is now widely used in the world (the impact of ESG risks and opportunities on the results of the financial and economic activities of a business, on one hand, and the organization's impact on the environment , society and the economy, i.e., the outside world, on the other).

According to Yakushin, the Bank of Russia, when issuing recommendations on non-financial reporting, initially proceeded from the fact that companies may have to disclose more detailed information on sustainable development in the future.

The Central Bank, which continues to work in this area, plans to issue recommendations in 2023 on the creation of sustainable development strategies. The presence of these strategies, according to the regulatory acts of the Central Bank, is a key condition for issuing bonds linked to sustainable development goals.

In May, the Bank of Russia, Yakushin said, plans to publish recommendations on financial institutions providing their clients with information on products related to sustainable development. These recommendations are aimed at preventing greenwashing and are designed to ensure that customers are fully informed.

The Central Bank is also finalizing recommendations on the disclosure of information in the field of sustainable development by financial institutions - "similar to what we did for PJSCs, but taking into account the specifics of financial institutions," Yakushin said.

At one time, the Central Bank developed recommendations for integrating the principles of integrated thinking and integrated disclosure into PJSCs' annual reports; however, it postponed the publication of this document due to restrictions on information disclosure introduced in 2022. "If the situation changes for the better, we will also issue these recommendations," Yakushin said. This document will help to take a more holistic approach to the preparation of annual reports in order to give them a complete picture of how the company takes into account the interests of all its stakeholders.

As reported, the International Sustainability Reporting Standards Board (ISSB), established within the IFRS Foundation, plans to publish two documents in June: the Common Sustainability Disclosure Standard (S1) and the Climate Disclosure Standard. "(S2). The documents will come into force starting January 2024 and are designed to harmonize national ESG disclosure standards, while, according to the decision of the Council, companies will be able to limit themselves in the first year to full and high-quality disclosure of information on climate risks (S2) according to the new rules, as the most relevant today for the market.