Leasing not a sector
As it stands now, the leasing industry is not considered a separate sector for sustainability reporting.
In the Tweuus June Newsletter -in Dutch only- the topic is briefly touched upon. In this blog, we delve further into consequences.
According to plans by the EFRAG Sustainability Reporting Board, the leasing activities are scattered over a multitude of sectors. The following proposal is made (text from the EFRAG SR TEG agenda papers):
Operational leasing activities have been assigned to the underlying manufacturing sectors they relate to.
Financial leasing operations are incorporated into the “Credit Institutions” sector.
Leasing of intellectual property and other tangible goods and non-financial assets – categories that can affect all sectors – remain in the “Sales and Trade” sector.
Tweuus makes the following observations:
Lessee versus lessor
It looks like the breakdown chosen is considered from a lessor’s main activities. It remains to be seen whether a lessor would follow this guideline. Example: a car manufacturer providing finance through finance leases and through operating leases. It is common knowledge that consolidated balance sheets of major car manufacturers are consisting of financing activities for more than 50%. Is then the portion of operating leases considered in another bucket than finance leases ?
Wording
Is EFRAG making a distinction between the wording ‘operational and financial leases’ versus ‘operating and finance leases’ as used in IFRS 16, the Leases international accounting standard applicable to large undertakings.
Financial leasing
Putting financial leases into the ‘credit institutions’ box may be appropriate for financial institutions, doing the funding of lessors, even if these lessors only have operational leases, it is of no help to lessor companies not legally part of a financial institution. Such lessor companies, and not being manufacturers either, certainly do not appreciate the heavy burden of reporting as if they were credit institutions. So these lessor companies will be reporting according to the last category ‘Sales and Trade’.
Third and last category
The last category is named Leasing of intellectual property and other tangible goods and non-financial assets which is a quite remarkable category.
Is the name of this category unintentionally concatenated. Or is it a typo to say … and other tangible goods … whereas intellectual property clearly is intangible.
It looks like a typo as tangible goods and non-financial assets could be seen as identical.
Which brings us to the next point: IFRS 16 Leases and leasing standards in many jurisdictions exclude from their scope the leasing of intellectual property. Even as it is excluded, it is not extinct: there are many kinds of leases around intellectual property. All of these leases are – correctly so- recorded in accounting as some sort of service contract with no extensive disclosures. Sustainability reporting suggest to bring these activities within the reporting domain of ‘Sales and Trade’.
In conclusion:
Perhaps, it is better to exclude the leasing of intellectual property altogether from sustainability reporting; the actual environmental impact of intangibles themselves is negligible.
It would be correct to reword the last category in Leasing of other tangible fixed assets.
