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Sep 08, 2023

The week in GRC: EU and GRI make progress on climate reporting and FASB adopts cryptocurrency accounting rule

This week’s governance, compliance and risk-management stories from around the web

Reuters (paywall) reported that the European Financial Reporting Advisory Group (EFRAG) and GRI said they have reached a ‘milestone’ toward helping international companies avoid costly duplication in climate-related disclosures.

Several sets of mandatory disclosure norms are being finalized to replace a patchwork of voluntary best practices. Regulators see this as key to stamping out greenwashing but also want inter-operability to avoid unnecessary costs for companies that apply more than one set of disclosure rules.

The EU is finalizing its European Sustainability Reporting Standards (ESRS), which have been drafted by EFRAG. Disclosure norms from global standards body GRI on how companies impact the environment have long been used by firms, leading to concerns they will have to duplicate reporting when EU rules apply.

‘Existing GRI reporters will be well prepared to report under the ESRS,’ said EFRAG and GRI in a joint statement. ‘Entities reporting under ESRS are considered as reporting with reference to the GRI Standards and will therefore avoid the burden of multiple reporting.’

GRI has also teamed up with the International Sustainability Standards Board (ISSB), which has just finalized its first set of standards for companies to disclose how climate change impacts their bottom line. The combination of ISSB and GRI seeks to replicate the double-materiality of EU norms.

– According to the Financial Times (paywall), Illumina appointed Jacob Thaysen as its new CEO as the biotech company revamps its leadership team following a battle with activist investor Carl Icahn. The world’s largest gene-sequencing company said Thaysen, who previously ran Agilent Technologies’ life sciences and applied markets group, will begin as CEO on September 25, replacing interim chief executive Charles Dadswell, who will resume his position as senior vice president and general counsel.

– The FT reported that the EU’s new climate chief has been given a mandate to explore carbon capture in an effort to limit global warming, as member states debate whether to make allowances for the technology in upcoming UN negotiations to end the use of fossil fuels. In a letter to Wopke Hoekstra, the Dutch nominee for EU climate commissioner, European Commission president Ursula von der Leyen said he should ‘intensify efforts’ to present ‘an ambitious, forward-looking strategy’ for the technology when he takes up his role.

Hoekstra, the former Dutch foreign minister, is due to take over in October from the EU’s previous climate chief. In his new role, he will oversee discussions for the EU’s 2040 emissions reduction target. The European scientific advisory board on climate change has recommended EU emission reductions of 90 percent-95 percent by 2040, relative to 1990.

Reuters reported that, according to a person familiar with the matter, a proposal by the International Monetary Fund (IMF) and the Financial Stability Board (FSB) on cryptocurrencies will be discussed at the leaders’ summit in New Delhi.

A paper on cryptocurrencies by the IMF and FSB has been submitted to participating countries, the person said, adding that India has also prepared a presidential note that will include the summary of the report. The EU has already approved the world’s first comprehensive set of rules for crypto-asset markets, but the FSB’s ‘global baseline’ minimum standards are designed to accommodate jurisdictions that want to go further.

Earlier this year, the IMF laid out a nine-point action plan for how countries should treat crypto assets, including a plea not to give cryptocurrencies such as Bitcoin legal tender status.

– The UK’s Financial Conduct Authority (FCA) is reviewing whether the country’s institutions are being too tough on individuals with political exposure, according to The Wall Street Journal (paywall). The FCA said it would look into whether domestic politically exposed people – those entrusted with a prominent public function – might be getting unfairly cut off from banking services.

‘Individuals may find themselves excluded from products or services through no fault of their own,’ the FCA said. ‘As well as potential unfairness, this also potentially harms the reputation of the UK’s financial services sector.’ The agency intends to publish the results of its review in June 2024, but said it could take action against banks sooner if it identifies problems with any institution’s policies.

CNN reported that British American Tobacco (BAT) reached an agreement to sell its businesses in Russia and Belarus. BAT said in a statement that it had entered into a formal sales agreement with a consortium led by members of the management team of its Russian operations. It expects the deal to complete within the next month, it added. ‘Upon completion, BAT will no longer have a presence in Russia or Belarus and will receive no financial gain from ongoing sales in these markets,’ the company said.

The company said as far back as March 2022, shortly after Russia invaded Ukraine, that its ownership of the Russian business was ‘no longer sustainable in the current environment’. Since then the Russian government has made it increasingly difficult for western companies to withdraw from the country, requiring them to pay a hefty fee to the government on selling their assets.

– According to CNBC, Stripe, Shopify and H&M Group announced they are spending $7 mn on carbon removal from a dozen new start-ups. The deal was facilitated by Frontier, a public-benefit company owned by payment-processing company Stripe, which launched in April 2022 to accelerate the development of carbon-removal technologies and make sure there is future demand to support the growth of the industry.

Stripe, Shopify and H&M are all member companies of Frontier. Each of them uses techniques for removing carbon dioxide provided by different firms, which vary significantly. For example, CarbonBlue uses calcium to mineralize and remove dissolved carbon dioxide in freshwater or ocean water. Frontier facilitates carbon-removal purchases for its member companies via multiple pathways, including pre-purchase agreements and offtake agreements.

– The WSJ reported that the FASB voted to set a new rule on cryptocurrency accounting and disclosure, changes that companies holding these assets have argued more accurately reflect their financial condition. The FASB voted unanimously to adopt a new standard that would require businesses to use fair-value accounting for Bitcoin and certain other crypto assets.

Companies and accountants have called for this change, as it would allow them to recognize losses and gains immediately and treat digital assets as they would some financial assets instead of as indefinite-lived intangible assets.

Ben Maiden

Ben Maiden is the editor-at-large of Governance Intelligence, an IR Media publication, having joined the company in December 2016. He is based in New York. Ben was previously managing editor of Compliance Reporter, covering regulatory and compliance...