It is generally accepted that sustainability reporting is important, but if you are still wondering what sustainability reporting actually is and why we need it, you are not alone. This article sets out to answer these questions along with an explanation of where we are on the sustainability reporting journey and what companies need to know.

What is sustainability reporting and why is it required?

Sustainability reporting is of growing importance to investors and other stakeholders as they use it to help inform their decisions. Investors are driving the pressure for more consistent and comparable reporting in this area as they need reassurance about the resilience of their investments. If a company is not adequately considering the sustainability of their business, what does that say about the future success of the company?

There are two aspects to sustainability reporting: one is companies reporting how their business affects society, the planet and the economy; and the other is reporting how these factors affect a company’s enterprise value.

It is important to understand that climate-related reporting is just one part of sustainability reporting, which also covers wider environmental considerations as well as matters such as social responsibility and governance.

How do all the existing sustainability reporting frameworks interact?

The world of sustainability reporting has become a busy place and it is often difficult to know where to start. However, changes are now under way that are expected to bring greater cohesion. Most notably, the IFRS Foundation has established the International Sustainability Standards Board (ISSB), which will set IFRS Sustainability Disclosure Standards. The first draft standards are expected to be published for consultation in 2022.

Importantly, during the coming year the ISSB will bring together the Climate Disclosure Standards Board (CDSB) and the Value Reporting Foundation (VRF). Another example of greater coordination is the IFRS Foundation’s Technical Readiness Working Group (TRWG), which was set up to perform preparatory work ahead of the ISSB’s official formation. This group consisted of members of key leading standard-setters for sustainability reporting including, for example, the Task Force on Climate-Related Financial Disclosures (TCFD). The ISSB will be considering the work of the TRWG as part of its initial work plan.

What is the state of play in the UK?

In the UK, there are two main developments to be aware of. First, the government plans to introduce mandatory climate-related financial disclosure requirements for certain UK entities as soon as April 2022 based upon the TCFD recommendations.

Second, the UK government has stated its support for the ISSB and indicated an intention to subsequently align with international standards. If it chooses to adopt the ISSB’s standards in the future, it is hoped that common foundations between the TCFD and the work of the ISSB will help enable a smooth transition for UK companies.

What should companies be doing now?

The UK government’s mandatory climate-related financial disclosures will cover a wide range of entities so it would be wise for companies within scope to inform themselves of the requirements. As soon as possible, companies should take stock of what they are reporting and identify where there may be gaps to fulfil the new requirements.

The Financial Reporting Faculty also provides up-to-date resources and guidance related to sustainability reporting matters on our non-financial reporting hub: icaew.com/nfr.

About the author
Laura Woods, Technical Manager, Financial Reporting Faculty