- In June 2023, the International Sustainability Standards Board released two new standards on sustainability and climate-related disclosures.
- The aim of the standards is to make mandatory climate reporting both consistent and comparable – which will be welcomed by corporates and investors.
- Organisations will have to brief their boards and executive teams on what the disclosures are, and representatives from different business areas will need to work together to understand the sustainability reporting requirements and potential assurance needs.
Sustainability reporting experts are urging accountants in business to become aware of the new sustainability disclosure standards with which they will be expected to comply within the next two years.
Two freshly made standards on sustainability and climate-related disclosures – IFRS S1 and IFRS S2 – were issued by the International Sustainability Standards Board (ISSB) in June 2023, and these will form the basis for reporting requirements worldwide.
“The ISSB standards have been designed to help companies tell their sustainability story in a robust, comparable and verifiable manner,” says ISSB chair Emmanuel Faber. “We have consulted closely with the market to ensure the standards are proportionate and will result in disclosures that are relevant for investment decision-making.”
Consistent, comparable reporting
CA ANZ reporting and assurance leader Amir Ghandar FCA says the new standards are an important initiative in improving reporting. They will assist with providing greater insights into the impact an entity has on the environment, and provide insights into other areas of operations.
The creation of this new suite of standards is a response to several factors that include a desire for higher quality information about the way entities manage a broader range of risks, and not just report on what is regarded as being traditional financial reporting.
EY Oceania chief sustainability officer Mathew Nelson says that the new suite of standards is a response to a call for a consistent framework for reporting.
“It is worth noting that one of the key reasons for the strong push [for] the ISSB’s standards here, as well as overseas, is that there is a pretty strong desire on both the investor and corporate side for consistency in reporting,” Nelson says.
“One of the key reasons for the strong push for the ISSB’s standards here, as well as overseas, is that there is a pretty strong desire on both the investor and corporate side for consistency in reporting.”
“There are so many frameworks that are currently being used, and different analyst surveys that corporates are really wanting to embrace as it enables them to get consistency.
“There’s a bit of work to do before that actually occurs but that is ultimately the objective and the hope – that the ISSB standards will deliver.”
A team solution
Two decades have passed since entities and their stakeholders had to get their minds around complex new accounting requirements that formed a part of the suite of International Financial Reporting Standards.
Those standards required entities to think carefully about how to build teams of people to implement the standards, as well as ensure their stakeholders were aware of changes.
The sustainability standards require a similar kind of process, Nelson says.
He says organisations must have the ability to bring together personnel with relevant expertise to ensure an entity can meet the demands of the new standards.
“The other thing is that it’s necessary to bring together teams within your organisation that capture different capabilities, so you’re bringing in your climate- and sustainability-related capability alongside your finance and your corporate reporting capability,” says Nelson, who is also a member of the Australian Accounting Standards Board (AASB).
“We are seeing tiger teams being developed to focus on this topic.”
A further issue of significance is ensuring people in charge of governance, such as the board of directors and executive management, are told how the new disclosures will look when they are prepared.
Nelson says that there is a need to ensure that people are aware of the nature of the disclosures that will appear, and the kinds of details that may crop up in material when an entity releases to investors and other stakeholders.
“What are the metrics that will be disclosed, and what are the qualitative discussions that will need to be had so people can start to get their head around what it is that is likely to be put out into the marketplace?” Nelson asks. “How does that actually equate to others in the same industry sector as you?”
“What are the metrics that will be disclosed, and what are the qualitative discussions that will need to be had so people can start to get their head around what it is that is likely to be put out into the marketplace?”
Climate reporting and assurance
KPMG partner and AASB member Adrian King FCA also specialises in sustainability. He emphasises the need for accountants and business leaders to develop an understanding of the framework, as well as ensuring they understand the mandatory nature of climate reporting.
King says that there is a need to ensure credibility of the new information in the form of assurance. That requires the development of assurance guidance on sustainability disclosures to make sure the work is done to a set of standards. This task is the responsibility of the International Auditing and Assurance Standards Board (IAASB) and its domestic equivalent, the Australian Auditing and Assurance Standards Board (AUASB).
An AUASB consultation paper on the IAASB’s proposed general requirements for sustainability assurance engagements was issued on 17 August, and the proposed standard is being developed as a standalone standard that could be applied to any sustainability-related disclosures, including those prepared in compliance with the new standards.
Stakeholders have until 10 November 2023 to provide their comments to the AUASB for their consideration.