Climate and sustainability adviser Michael Watson said: “There is a current and growing maelstrom of regulation and standards driving enhanced disclosure and transparency and requiring the reporting of financial and non-financial information regarding corporate sustainability performance. The alignment of non-financial sustainability-related information – which can often be considered as more subjective compared to traditional financial reporting information that has a greater appearance of objectivity and more established approaches to assurance and verification – with financial reports, is becoming transformative in corporate behaviours.”
“The fact the ISSB along with others are driving this change presents an opportunity, but also a challenge, as firms within scope seek new approaches to ensure they have appropriate governance and reporting structures in place to source appropriate information and establish what level of assurance is possible. This requires multi-disciplinary advice and support. In corporate governance terms, this requires really close and effective collaboration between various functions including finance, operations, compliance and legal,” he said.
Hayden Morgan, who helps businesses meet their sustainability goals, said the landscape of sustainability-related standards is currently fragmented and that meeting the varying requirements adds cost, complexity and risk to both companies and investors.
Morgan said: “The emphasis of the ISSB’s work is on the development of a ‘baseline’. That is, a minimum standard of good practice sustainability disclosure. From this perspective, the ISSB standards provide a welcome level playing field for firms to develop a foundation for sustainability disclosure. Stakeholders will welcome that consistency and comparability when applied on a global basis.”
“However, many firms in regions such as the EU should view ISSB as the minimum prescribed disclosure requirements. Such firms will very soon be required by law to meet higher, and more stringent, disclosure requirements, such as those proposed for the EU CSRD. The EU’s approach to disclosure fundamentally differs in a number of aspects. Arguably, the most significant of these is the EU’s requirement for firms to apply a ‘double materiality’ principle – ‘impact materiality’ and ‘financial materiality’. This will require firms to assess what is material to their firm’s financial performance as well as the firm’s impact on the environment or on people,” he said.
Morgan said that businesses should regard disclosure requirements as “the tip of the iceberg” and be prepared to make significant changes internally to meet the new standards.
“Below the waterline are the internal operational processes and capacities required to make evidence-based, robust and scientifically-rigorous disclosures,” Morgan said. “Firms operating internationally and/or with supply chain across multiple jurisdictions, face a maelstrom of sustainability regulation and changing stakeholder expectations.”
“Prudent firms will respond by developing an integrated sustainability governance and stakeholder engagement framework, with defined multi-functional operational processes. Such a response will help firms not only meet minimum ISSB requirements, but also comply with more stringent regional variances in disclosure, and, more crucially, equip firms to navigate the global transition to a more sustainable economy. This should drive tangible real-world outcomes for investors, the environment, and people,” he said.
Climate and sustainability experts Sharon E. Smith and Euan McVicar said that while the final wording of the standards has not yet been published, businesses will welcome the position the ISSB has taken in relation to implementation of its standards.
Smith said: “The ISSB agreed in April to provide a package of reliefs for companies, meaning that for the first year they use the ISSB standards they need not provide disclosures about sustainability-related risks and opportunities beyond climate-related information. Companies will also not need to provide annual sustainability-related disclosures at the same time as the related financial statements; provide comparative information; nor disclose ‘Scope 3’ greenhouse gas emissions. In addition, the companies will not need, during that first year, to use the Greenhouse Gas Protocol to measure emissions, if they are currently using a different approach.”
The ISSB announced in April that: “Companies will still need to apply S1 in the first year they use the ISSB standards to meet general disclosure requirements where they relate to climate, however. For example, the new S1 is expected to set out the approach to materiality and requirements for connectivity of information with that in the financial statements, which are relevant to the disclosure of climate-related information.”
Euan McVicar added: “The newly proposed phased implementation was an important concession which we believe is more likely to result in the standards being successfully implemented. What is now of paramount importance is how individual jurisdictions seek to implement the finalised standards. I suspect there is still much to come on that.”
