Policy on sustainability disclosure is quickly evolving. Organisations must prepare for a new era of corporate reporting.
In 2023, the International Sustainability Standards Board (ISSB) formalised two reporting standards: one on general sustainability-related reporting, and another on climate-related reporting.
These laid out for businesses how to disclose sustainability topics for investors and lenders. They built on existing standards, and began to blend the ‘alphabet soup’ of standards into a more cohesive meal.
Countries are currently adapting the framework to their local reporting standards. The Monetary Authority of Singapore, Australian and NZ treasuries, plus the EU Parliament have issued their own reports. Here we highlight key considerations.
ESG standards have evolved significantly over the last decade. They have been subject to plenty of criticism: who gets to decide what is material, and what weighting to apply? Why is ‘Governance’ included when an arms dealer could have good corporate governance and strong board oversight? The risk of being accused of greenwashing or greenhushing has made some corporates wary of promoting genuine progress. Others have been overwhelmed by reporting to multiple, sometimes conflicting, standards. From these foundations, the ISSB was created to draw some of the most concrete and formalised existing standards into one place.
For stakeholders and investors reviewing corporate reports, there was often also a disconnect between financial reporting and sustainability. Financial reporting was mandatory, while sustainability reporting, largely voluntary and potentially selective (ie you could select what was material to report on). In larger organisations, Finance & Sustainability teams were separate departments, reporting at different times of the year. The ISSB connects these at the hip. The new standards link financial and non-financial reporting, which means your sustainability reporting will come under the same level of scrutiny as your financial reporting. The new IFRS S1 & S2 standards are closely aligned with existing IFRS financial reporting standards because they are focused on single materiality - the enterprise value of the company. The primary stakeholders are creditors, lenders, and investors.
ESG ratings already had the potential to impact the cost of capital, attracting and retaining employees, and consumer perception. Now as reporting shifts from voluntary to mandatory, it’s a compliance matter. This makes ESG increasingly a CFO priority.
94% of CFO respondents believe social will be an important priority for their organisation in 2030
KPMG '30 Voices on 2030: The ESG Revolution'
All this means, you’ll need to deliver detailed sustainability reports. So, you need to be looking at your data now, and ask yourself a simple question - “is this good enough”? If the answer is no, you need to lay out your plan for change.
Given you need to build risk management and strategy processes for sustainability, the quality of your plans depends fully on the quality of the data. IFRS S1 & S2 require you to quantify financial impact. This means understanding relationships that are not necessarily direct. Getting your sustainability scenarios and transition planning wrong could mean your financial budgets and forecasts are inaccurate. Here are some relationships between sustainability topics and your financial statements:
To model this, you will need to bring together a lot of data - potentially data no one has looked at before. Your trial balance, accounts payable data might be in good shape. But other data - sub-ledger operational data, supplier data - may need many iterations, cleansing and refinement before you can use it.
Overall group-wide responsibility for ISSB-related sustainability reporting should be the same calibre as for financial reporting, using the same oversight, governance framework and quality assurance processes.
EY 'Navigating the new frontier of sustainability standards'
Most country-level implementation timeframes start in 2025 and extend into the mid-term for companies to start reporting. Some cascade the rollout, starting with larger listed entities.
If you’re a mid-sized business, don’t let that stop you from being a leader. You don’t have the same financial resources to build large teams, but you’ve got flexibility on your side. Companies wanting to embark on sustainability initiatives should do so with transparency from the beginning. Your sustainable transformation makes you a winner for informed consumers. When large corporations see nimble competitors outpacing them in the race to the low-carbon economy it can make you a more attractive employer of choice. And, if some of your customers are larger companies, they may ask you for emissions reporting, as they’ll need this when they look at their Scope 3.
Many CFOs & Operations leaders may also not realise also is how shoring up energy sources and increasing efficiency can directly reduce costs. For example, IBM initiatives conserved 10 million kWH energy, saving the company $680m.
78 percent of consumers were more likely to remember companies that exhibit a strong purpose.
64 percent of companies with product sustainability programs achieved lower logistics and supply chain costs.
Deloitte 'Sustainable CFOs: Why CFOs are key to driving the ESG agenda'
If you’re geared up for change, and would like to discuss where to start, get in touch today.
1. What are the recent developments in sustainability reporting standards? In 2023, the International Sustainability Standards Board (ISSB) formalized two reporting standards, one focusing on general sustainability-related reporting and the other on climate-related reporting. These standards provide guidelines for organisations to disclose sustainability topics for investors and lenders, blending existing standards into a more cohesive framework.
2. How do these standards impact corporate reporting practices? The new sustainability reporting standards mark a shift from optional to mandatory reporting, aligning financial and non-financial reporting. This means that sustainability reporting will come under the same level of scrutiny as financial reporting, influencing compliance, risk management, and strategy processes.
3. What is the significance of the IFRS S1 & S2 standards? The IFRS S1 & S2 standards, closely aligned with existing financial reporting standards, focus on single materiality—the enterprise value of the company. This ensures that stakeholders such as creditors, lenders, and investors receive comprehensive and consistent information regarding sustainability and financial performance.
4. How can companies prepare for the transition to mandatory sustainability reporting? Preparing for mandatory sustainability reporting involves assessing the quality of data and developing robust risk management and strategy processes. Companies need to evaluate their data infrastructure, ensuring it can quantify the financial impact of sustainability initiatives accurately.
5. What opportunities does sustainability reporting present for businesses? Sustainability reporting goes beyond compliance—it presents opportunities for cost savings, access to markets, and building resilience along the supply chain. By embracing sustainability initiatives transparently, businesses can attract informed consumers, become more attractive employers, and realise tangible benefits such as reduced energy costs and increased efficiency.
For more information and guidance on navigating the evolving landscape of sustainability reporting follow GettingtoZero.
