The world of sustainability reporting is about to undergo a significant transformation. The International Sustainability Standards Board (ISSB) has recently announced the publication of the IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures. These standards signify a milestone towards a global baseline for sustainability disclosures, which is expected to have far-reaching implications for businesses and investors alike.
Azra Nurkic, the CEO of the Institute for Development Impact, offers an insightful perspective: “The ISSB’s new standards could serve as a linchpin for standardizing sustainability disclosures, particularly for sectors with complex sustainability challenges like agriculture. They provide a structured framework that aligns with the sustainability commitments of the sector, such as reducing greenhouse gas emissions, promoting fair labor practices, and ensuring the sustainable use of natural resources.”
Prior to the creation of the ISSB, a number of organizations were involved in developing standards and frameworks for corporate sustainability disclosure. One of these, the Value Reporting Foundation, was known for the Sustainability Accounting Standards Board (SASB) Standards, a unique industry-based approach to sustainability reporting. Between January 2020 and August 2022, 2,336 companies across 68 markets used the SASB Standards for their sustainability disclosures, demonstrating the significant scale and influence of these standards. The establishment of the ISSB and the release of the IFRS S1 and S2 standards have evolved this landscape, with the ISSB now stewarding the SASB Standards. The new standards have been designed to encourage disclosure of sustainability-related risks and opportunities that could affect an entity’s cash flows, access to finance, or cost of capital over the short, medium, or long term.
However, the journey to full implementation of these standards is not without challenges. The complex contexts in which these companies operate, including diverse climate conditions, local regulations, and sector-specific factors, could complicate the application of a uniform disclosure standard. The standards are effective for annual reporting periods beginning on or after January 1, 2024, and many organizations will need to ramp up their capabilities to meet these requirements. Feedback on the exposure drafts of the standards highlighted concerns around resource implications, especially for smaller entities and those in emerging markets, as well as the need for more support and guidance on specific disclosures. Additional complexities arise from requirements such as the disclosure of forward-looking information, the reporting of Scope 3 GHG emissions, and the alignment of sustainability reporting timelines with financial statement release dates.
While some of these challenges may seem daunting, they are not insurmountable. The ISSB and other stakeholders are actively working on providing resources, guidance, and support to help entities implement these standards. Nurkic adds, “Creating universally applicable standards is a challenging task, and the ISSB has done an admirable job.” As we move forward, the task of adapting these standards to specific sector contexts and assisting businesses in establishing reporting systems, applying standards, collecting data, and making materiality judgments will necessitate careful guidance.
Empowering Sustainability through Local Institutions: I4DI’s Support for Disclosures and Inclusive Development
Recognizing the considerable resources needed for disclosures, both during the initial phase of establishing reporting systems and in the long term, which can pose challenges, particularly for smaller businesses and those in emerging markets, I4DI is committed to supporting these efforts through contributions to a global network of affiliated, well-trained and highly capable local institutions. By forming partnerships with local institutions, we ensure that the data collected is context-specific, relevant, and directly contributes to the reporting requirements and sustainability strategies of the businesses wherever they operate. However, integrating this approach in line with the ISSB standards calls for careful planning and execution. It requires robust capacity-building mechanisms to enable local institutions to effectively collect and analyze data. Additionally, it necessitates the development of systems that ensure data transparency and quality assurance, so the information adheres to ISSB’s global sustainability standards. At I4DI, we champion a sustainability model that is not only locally-led but locally-sustained. We stand ready to assist our clients in fostering this important shift in how sustainability is viewed and implemented. By empowering local institutions, we are laying the groundwork for a more sustainable, inclusive, and effective approach to economic development.
As we navigate this period of change, it is crucial for businesses and investors to stay informed and proactive. We are witnessing a pivotal moment in the evolution of sustainability reporting, and the actions we take now will shape the future of corporate sustainability disclosures for years to come. In the coming months, we will also be engaging with industry platforms and forums to share insights and experiences, including the World Business Council for Sustainable Development’s (WBCSD) Preparer Forum for Sustainability Disclosure. We’re excited about the future of sustainability disclosures and are committed to providing the guidance that businesses need to implement these standards effectively within their unique contexts.