Unlocking the potential of sustainability reporting

Note: This year’s annual IFRS Sustainability Symposium theme was “get ready,” marking a pivotal moment as we look toward adoption and implementation of the International Sustainability Standards Board’s (ISSB) IFRS S1 and S1 standards across the capital markets. Discussions addressed the infancy of the standards, the capacity building required for reporting, the opportunities and challenges that exist in implementing the standards and the rise of regulatory fragmentation as we look towards a global baseline.

A new language in the capital markets

Throughout the conference, understanding the ISSB standards was equated to learning a new language and ISSB leaders acknowledged and emphasized the need for organizations to be granted time and support as they navigate disclosing in accordance with the standards. Drawing parallels with the "crawl, walk, run" approach, speakers advocated for a phased implementation strategy to ease the transition. To assist organizations through their initial disclosures, the ISSB standards include the concept of proportionality, as seen in other IFRS accounting guidance. The concept of proportionality ensures compliance with disclosure requirements is achievable without imposing undue financial burdens.

Opportunities and challenges in adopting the ISSB standards

Today, sustainability risks and opportunities are difficult to quantify. The ISSB standards help to quantify, ensuring investors are provided with decision-useful information. However, organizations will be required to obtain assurance of their disclosures, resulting in the need for accurate, complete and verifiable data, which is a challenge for many organizations who are early in their ESG data gathering phase. Additionally, depending on the skillset of the organization, required disclosures such as financial quantification of risks and opportunities and climate scenario analysis will become an activity that is outsourced due to limitations within the organization.

A theme that emerged was the change management required for reporting, this includes communicating across stakeholder groups to provide education and awareness as sustainability-related information sits across various departments such as legal, health and safety and finance. Intentional collaboration between sustainability teams and financial reporting and accounting teams is critical to the success of sustainability reporting. Organizations must break down the metaphorical silos that exist, which many find challenging to do.

The rise of regulatory fragmentation

While there has been great progress in addressing the ESG alphabet soup through the convergence of voluntary sustainability disclosure frameworks, such as TCFD, SASB, CDSB and the Value Reporting Foundation, into the IFRS Foundation, regulatory fragmentation remains a significant obstacle, particularly in the United States. Regulation such as the proposed SEC climate-related disclosure, the California Climate Accountability Package, New York’s Climate Corporate Accountability Act and the Federal Supplier Climate Risks and Resilience Rule introduce varying levels of complexity and reporting requirements, posing a substantial burden on organizations. This highlights the urgent need for global alignment among investors, corporations and policymakers to establish a cohesive framework for sustainability disclosures, mitigating the challenges posed by regulatory fragmentation.

Looking forward

The journey toward comprehensive sustainability reporting under the ISSB standards is not without its challenges. However, with a joint effort from stakeholders across the financial ecosystem – including regulators, investors and reporting entities – the promise of transparency, accountability and informed decision-making within sustainability reporting can be realized. Looking ahead, continued collaboration, innovation and adaptation will be critical as we navigate this evolving landscape.