To drive higher-quality comparable reporting, processes for preparing sustainability reporting need to be designed and operated with the same rigour as those for financial reporting. The consolidation of sustainability reporting standards that is now taking place, notably under the ISSB, presents an opportunity to do this, and we are fully supportive of the ISSB’s ambition.
New proposals on the first IFRS Sustainability Disclosure Standards, part of the ISSB work, mark the next step towards equal prominence for sustainability and financial reporting. The proposals aim to create a global baseline for investor-focused sustainability reporting that local jurisdictions can build on and be compatible with other sustainability reporting regulations being issued by the EU and by the SEC in the US.
It looks likely the standards will be published in 2023, and a rapid route to adoption is expected in several jurisdictions. In some, the standards will provide a baseline either to influence or to be incorporated into local requirements while others are likely to adopt the standards in their entirety. This is a critical milestone in the journey towards a consistent global baseline of investor-relevant sustainability reporting. The aim is to drive transparency and enable investors to make better informed choices.
These standards are being developed at a much faster pace than IFRS Accounting Standards. Under the proposals, companies would report on all relevant sustainability topics (not just on climate-related risks) across four content areas that are consistent with the TCFD eg governance, strategy, risk management, and metrics and targets.
Reporting would be connected to the financial statements and released at the same time. Therefore, companies will need processes and controls in place so that they can provide sustainability information of the same quality, and at the same time, as their financial information. Getting ready now is critical even if the final standards may not be identical to the proposals. We know more standards will be coming along the horizon, such as those discussed at COP15 in December 2022 relating to biodiversity loss and natural capital. And sustainability reporting requirements are not just limited to listed companies. Large private companies will also need to report, initially on climate related disclosures and eventually a range of other topics.
Companies that already report in line with existing frameworks such as the TCFD and have the processes in place to produce similar sustainability-related information are likely to find reporting under the final ISSB standards easier.
Corporate sustainability reporting can – and should – start driving a different conversation in the board room such that business owners stretch their thinking and ensure, from the top down, leadership teams are making principle based and strategic decisions that take the climate, as well as broader sustainability considerations, into greater and sustained account. These conversations become less about what a company ‘must’ do (comply) and more about what a company ‘wants’ to do (bring change).
Here in the UK, we have an opportunity to build a world class reputation for sustainability reporting and external assurance and further strengthen our internationally renowned capital markets, our position as a leading business destination and reinforce our commitment to sustainability more broadly. It is critical that we seize this moment, and we are fully committed to playing our part as a firm.