Understanding the Alignment: Sustainability Reporting Standards, ESG, and the Role of ISSB
In today’s rapidly changing world, sustainability has become a critical focus for businesses across industries. As companies strive to integrate sustainability into their operations, they encounter various sustainability reporting standards and frameworks. Additionally, the rise of Environmental, Social, and Governance (ESG) considerations has further emphasized the need for standardized reporting practices. In this article, we will explore the alignment between sustainability reporting standards, ESG, and the International Sustainability Standards Board (ISSB) role. By understanding this alignment, businesses can effectively communicate their sustainability performance and contribute to a more sustainable future.
Sustainability reporting standards have long been the cornerstone of responsible business conduct. The Global Reporting Initiative (GRI) emphasizes comprehensive sustainability reporting to the Sustainability Accounting Standards Board (SASB), focusing on industry-specific disclosure; these standards cater to diverse aspects of sustainability. Additionally, the Task Force on Climate-related Financial Disclosures (TCFD) plays a pivotal role in climate-related risk assessment and disclosure, shaping the financial sector’s response to climate change.
Sustainability reporting standards provide a framework for organizations to disclose their environmental, social, and governance impacts. The Global Reporting Initiative (GRI) is one of the most widely recognized and adopted sustainability reporting frameworks. It offers guidelines for reporting on various sustainability topics, enabling companies to measure, manage, and communicate their sustainability performance. By adhering to these standards, businesses can enhance their sustainability reporting’s transparency, accountability, and comparability.
ESG considerations have gained significant traction recently, with investors and stakeholders increasingly valuing companies’ sustainability performance. The positive relationship between ESG scores and sustainability performance is highlighted, indicating that firms with remarkable sustainable development strategies tend to have higher profitability. As a result, companies are recognizing the importance of integrating ESG factors into their decision-making processes and reporting practices. This integration allows businesses to demonstrate their commitment to sustainable practices and attract socially responsible investors.
First announced at COP26 in November 2021, the industry has much anticipated the ISSB standards. The International Sustainability Standards Board (ISSB) is an independent, private-sector body that develops and approves IFRS Sustainability Disclosure Standards (IFRS SDS). The ISSB builds on the work of market-led investor-focused reporting initiatives, including the Climate Disclosure Standards Board (CDSB), the Task Force for Climate-related Financial Disclosures (TCFD), the Value Reporting Foundation’s Integrated Reporting Framework and industry-based SASB Standards, as well as the World Economic Forum’s Stakeholder Capitalism Metrics. The ISSB operates under the oversight of the IFRS Foundation. In May 2023, the launch of the International Sustainability Standards Board (ISSB) S1 and S2 sustainability reporting standards was called a “landmark day for the global economy and the financial sector.” The ISSB developed the first two IFRS Sustainability Disclosure Standards and served as a comprehensive global baseline of sustainability disclosures for the capital markets. The standards were launched in Nigeria on June 26 2023 and will become effective for annual reporting periods beginning on or after January 1, 2024, though early adoption is allowed. During COP27, the Financial Reporting Council of Nigeria (FRCN) announced the adoption of the IFRS standard for sustainability reporting in Nigeria and recently published guidelines for early adopters to comply with to claim reporting with the IFRS standards.
The first two IFRS Sustainability Disclosure Standards developed by the ISSB aim to serve as a comprehensive global baseline of sustainability disclosures for the capital markets. It is hoped it will create a common language to express the risks and opportunities of a company’s sustainability credentials. This initiative recognizes the need for a unified approach to sustainability reporting, ensuring consistency and comparability across industries and jurisdictions. The ISSB’s role is to provide guidance and set standards that enable companies to report on their sustainability performance effectively. By aligning with ISSB standards, businesses can enhance the credibility and reliability of their sustainability disclosures, facilitating informed decision-making by investors and stakeholders.
While aligning sustainability reporting standards, ESG, and the ISSB presents numerous opportunities, it also poses challenges. The role of the GRI in the context of the ISSB’s entrance as a standard setter for sustainability reporting is discussed. This transition raises questions about the future of existing reporting frameworks and the potential need for harmonization. The 2023 sustainability count report by PWC states that 81% of companies studied have adopted the GRI framework, which continues to be the dominant sustainability reporting standard in Asia. Eyes are now on how, irrespective of jurisdictions, will adopt/prepare for the ISSB or CSRD and US SEC requirements. Additionally, the evolving nature of sustainability reporting and the emergence of new reporting standards require businesses to stay updated and adapt their reporting practices accordingly.
Understanding the alignment between sustainability reporting standards, ESG, and the role of the ISSB is crucial for businesses seeking to integrate sustainability into their operations. Companies can enhance transparency, accountability, and comparability in their sustainability disclosures by adhering to globally accepted reporting standards, such as those provided by the GRI. The rise of ESG considerations further emphasizes integrating environmental, social, and governance factors into decision-making processes and reporting practices.
The ISSB’s role in developing globally accepted sustainability reporting standards provides a framework for businesses to communicate their sustainability performance effectively. By embracing this alignment, businesses can contribute to a more sustainable future and attract socially responsible investors and stakeholders.