13 June 2024

The role of national standard-setters in delivering ESRS

The governance of national standard-setters varies greatly across the European Union, with implications for how the reporting standards are implemented, writes Philippe Diaz

The role of national standard-setters play in the interpretation and implementation of the ESRS will become especially critical

Will the European Sustainability Reporting Standards (ESRS) be the great data leap forward they are supposed to be? Will they deliver relevant, faithfully represented, understandable, verifiable and comparable data?

Well, it depends. Several potholes may turn implementation into a bumpy road. Some are well known. Preparers, consultants and assurance providers are battling with a lack of sustainability competency and struggle to hire additional staff.

Other potholes are only slowly emerging into the public limelight. One is the governance of national standard-setters, which varies greatly across the European Union.

Critical role of national standard-setters

Phillippe DiazIn every member state of the European Union someone is responsible for dealing with corporate reporting standards. Whoever's responsibility this was historically dealt with financial reporting standards developed by the IFRS Foundation. In Eastern European countries the responsibility largely lies with ministries of finance.

In Northern and Central European nations, it is with dedicated organizations acting as national standard-setters on behalf of the national governments. They are tasked with providing legislative advice (e.g. on transposition of the Corporate Sustainability Reporting Directive into national law), helping improve the translation of standards into national languages, and representing national governments at bodies like EFRAG or the IFRS Foundation that act beyond national jurisdiction.

Beyond their involvement in interpreting or developing reporting standards, they are essential to their roll-out. Given their vital function, one would expect that national standard-setters are set-up in a way that ensures they act in the national interest, covering a range of stakeholder perspectives, including those of financial institutions, businesses of all sizes, trade unions as well as civil society. The Code of Good Practice for Sustainability Systems developed by ISEAL provides useful guidance on how national standard-setters can meet expectations.

Expectations for national standard-setters

From this code of good practice, a list of four very basic expectations for national standard-setters can be drawn up:

   1. Operate free of conflicts of interests

The technical work of a standard-setter must be carried out independently and free from conflicts of interest to appear credible and impartial. The funding therefore does not originate from those stakeholders who will be subject to the standard or who can influence the content of the standard.

   2. Conduct credible multi-stakeholder processes

The standard-setter identifies relevant stakeholder groups with first-hand experience and expertise on the subject matter. Subsequently the standard-setter actively reaches out to ensure active participation and balanced, open consultation processes and representative decision-making bodies. Members and committees reflect the diversity of stakeholders in sustainability reporting in the public interest.

    3. Onboard necessary technical competency

Sustainability reporting is new to many firms, institutions and standard-setters. It is therefore essential to rapidly upskill to develop the competencies needed. The ISEAL Code defines competency as having sufficient knowledge, judgment, or skill for a particular duty. A precondition to adequately contribute to the development and implementation of standards, as well as effectively coordinate multi-stakeholder processes.

    4. Operate transparently

The standard setter ensures that information on its work is available and understandable. Relevant information on the development of standards, decision-making processes and the management of the organization is freely and publicly accessible.

Significant differences in governance set-up amongst national standard-setters

One might expect that standard-setters across the European Union dealing with the ESRS are largely operating in line with these expectations. This is, however, not the case. Wildly different governance models exist.

In the following, we compare the set-up of the French Autorité des Normes Comptables (ANC) and the Accounting Standards Committee of Germany (ASCG) to help initiate a wider discussion. Before diving into the details, it is noteworthy that the ANC operates with an explicit mandate on financial and sustainability reporting. The ASCG only has a mandate for financial reporting and believes sustainability reporting does not fall under its mandate. A legal review from April 2024 agrees.


Comparison of governance set-up between ANC and ASCG
Company ANC ASCG 
Operate free of conflicts of interests Public Authority and part of the French Ministry of Finance.

Salaries of ANC staff are paid by the Ministry.

Companies fund ANC's contribution to international standard-setters (IASB and EFRAG). Height of contribution is negotiated with business associations.

Membership to the private association is only open to five categories of business.

Roughly 97% of its freely available budget for 2022 are membership fees from the private sector. Mostly from large businesses.

Annual fees of 10.000 EUR create significant barriers of entry for SMEs. Firms listed in DAX pay 50.000 EUR, thus creating a heavy financial dependence on large corporations.

Conduct credible multi-stakeholder processes

College: Decision-making body for both financial and sustainability reporting relying on three Commissions: French accounting standards, international accounting standards and sustainability reporting standards.

The composition of the college was extended in 2024 to include three members with relevant sustainability competency (preparer, academic and auditor) amongst 16 members in total.

The Sustainability Reporting Commission is composed of 12 members plus the Chair and Vice Chair reflecting various stakeholder groups (3 preparers, 3 auditors, 3 investors, 3 members of civil society) and 2 observers representing public authorities (Ministry AMF and ACPR).

Members are not financially compensated.

The Sustainability Reporting Committee does not have a single person that can be regarded as a legitimate representative of nature. The only person associated with the Unions left in early 2024. The absolute majority of members is from the private sector.At the moment there is no civil society representative in any of the working groups across the ASCG. In 2023 a representative from UN PRI left the working group on climate and was not replaced.

ASCG publicly claims to only represent the interest of its members and the wider German economy. However, at least two business associations disagree. A representative of one these business associations left the Nomination Committee in 2023.

No indication found that members are financially compensated.

Onboard necessary technical competency

Composition of "college" evolved in Q1 2024 from X members (with financial accounting background and focus) to X+3 members representing Sustainability: 1 auditor, 1 sustainability director from a prepare, 1 civil society.

Members of the Sustainability Commission have some sustainability competencies.

It is not immediately clear what sustainability expertise ASCG staffhas. Background appears largely in financial accounting.

A new stakeholder panel is being set-up, but rather loosely integrated into the governance structure.

Operate transparently

Annual activity report and yearly work program is published. Data on diversity of composition of technical bodies is not published, but included in the law.

All meetings of the College and Commission are recorded and minutes released on the ANC website.

Meetings are generally held in public. Summaries are published on the website.

An annual report is published, which contains insights on the stakeholder groups represented across the various technical committees.


Conclusion and way forward

The French standard-setter, ANC, is embedded in the structures of the national government. It is at the early stages of ensuring adequate representativeness in its stakeholder engagement processes and increasingly onboarding relevant technical expertise.

The German standard-setter, ASCG, appears less well equipped. In fact, multiple departures from non-business stakeholders appear to have degraded the sustainability competency over the past months. The Sustainability Reporting Committee never had a legitimate representative for nature. The only legitimate representative on social matters left and it remains unclear whether he will be replaced. The new stakeholder panel that is being set-up fails to address structural criticism and conflicts of interests put forward by the signatories of the public letter.

ESG reporting is here to stay and will evolve over time. The ESRS will evolve. Sector-specific standards will be developed. Ecological budgets (being the only real measure of sustainability) will hopefully increasingly be embedded into standards. National standard-setters play a vital role in that. Governments need to ensure the entities that operate under its mandate act transparently and free of conflicts of interests, with adequate technical competency running credible multi-stakeholder processes.

Due to the dominant role national standard-setters play it is better to look closely at how they fare against the expectations set out. Going forward their role in the interpretation and implementation of the ESRS will become especially critical. If they lack the necessary expertise investors are likely to keep looking for relevant, faithfully represented, understandable, verifiable and comparable data. It will remain a pipedream.

Philippe Diaz is civil society representative in the Sustainability Reporting Technical Expert Group at EFRAG. The views expressed are his own.

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Philippe Diaz