The Standardisation of Sustainability Reporting
The transition toward statutory reporting of sustainability continues at pace. As does the impetus to put sustainability reporting on an equal footing with that of financial reporting.
This transition is within the context of the many sustainability frameworks which currently exist; each of whom offer their own unique approaches to data collection and reporting
It is therefore vitally important that organisations take stock and make early preparation for the inevitable consolidation and standardisation of sustainability reporting to ensure their organisation is fully aligned and prepared.
The International Sustainability Standards Board and IFRS Sustainability Disclosure Standard SX
At COP 26 the IFRS Foundation Trustees announced the creation of a new standard-setting board—the International Sustainability Standards Board (ISSB). For some this is a long awaited and often discussed consolidation of the many voluntary framework disclosures under one common and consistent framework.
The IFRS Foundation is the public interest organisation who through their International Accounting Standards Board are responsible for the development and publication of the IFRS Accounting Standards. It is used in preparing, auditing and delivery of financial reports. The IFRS AS is the benchmark and widely adopted international financial reporting standard.
The International Sustainability Standards Board (ISSB) fills the demand for one high quality, transparent, reliable and comparable standard for organisations on climate and other environmental, social and governance (ESG) matters.
At its launch the IFRS declared:
‘The intention for the ISSB is to deliver a comprehensive global baseline of sustainability-related disclosure standards that provide investors and other capital market participants with information about companies’ sustainability-related risks and opportunities to help them make informed decisions.’
The Technical Readiness Working Group (TRWG)
In preparation for the IFRS Sustainability Disclosure Standard SX (IFRS SX) the Foundation has established the TRWG. The TRWG will provide a ‘running start’, enabling the ISSB to build on the well-established work of long-standing voluntary initiatives. They T have prepared two prototype IFRS SX standards covering:
Climate Related Disclosures – building on the TCFD recommendations and SASB industry-based standards; and
General Requirements for Disclosure – for sustainability related financial information
The climate related disclosure standard is expected to be the first of the sustainability disclosure standards issued by the ISSB amongst broader standards on sustainability topics.
Future of Sustainability Reporting Standards
The steady transition from voluntary reporting to statutory reporting on sustainability has seen cooperation and consolidation of participants including CDSB, IIRC and SASB – and contribution by IOSCO, TCFD and WEF. Together they share the aim of enterprise value-focused sustainability disclosures.
Many companies already choose to voluntarily disclose against the standards published in Figure 1. These organisations will therefore, be well placed to transition to the new ISSB standard.
The IFRS public consultation will take place in 2022. This gives stakeholders around the world an opportunity to provide feedback on the new board’s proposed standards and on which items should be included in the ISSB’s initial work plan. The outcome of the public consultation will give a better understanding of the impact and timeframe in which these new regulations will be implemented.
The IFRS AS had a five-year implementation process. The voluntary reporting organisations contributing into IRFS SX are well advanced in their frameworks. On that basis it is anticipated that the implementation of IFRS SX will be over a much shorter time frame.
Governex will continue to publish regular updates on the introduction and implementation of the Standard.
How Governex can help
Governex is a boutique advisory and implementation business that specialises in ESG performance.
We work with organisations who need our help in managing their ESG needs, implementing change, and using ESG as a strategic differentiator.
For further information, please get in touch.
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