What are sustainability standards?
Why are sustainability standards required?
Sustainability reporting is of growing importance to investors and other stakeholders. Investors specifically use sustainability reporting to inform their decisions and are driving the pressure for more consistent and comparable reporting in this area.
Standards are needed to support the direction of capital to sustainable enterprise and to help make global capital markets resilient and efficient.
Standards enable consistent and comparable information essential to efficient capital markets.
Standards based on principles of legitimacy, independence, transparency, public accountability and oversight and through due process are essential to obtain buy-in and trust from all stakeholders.
What is the IFRS Foundation proposing in relation to sustainability reporting standards?
What topics will be covered by the IFRS Sustainability Disclosure Standards?
The IFRS Foundation has confirmed the new board will initially focus its efforts on climate-related reporting, while also working towards meeting the information needs of investors on other environmental, social and governance (ESG) matters.
The standard on climate-related reporting is likely to focus on providing information on climate-related financial risks and opportunities identified by an entity, their impact on a company’s financial position, performance, and enterprise value creation, and details of the entity’s governance, strategy, risk management processes, and relevant metrics and targets related to those risks and opportunities.
Other priorities include developing a standard for the presentation of sustainability information and establishing conceptual guidelines for setting sustainability standards, while also working towards producing standards which cover the broader scope of ESG matters.
In early 2021, the IFRS Foundation set up a Technical Readiness Working Group (TRWG) which has undertaken preparatory work to give the new board a running start. The TRWG has built upon the work of the Task Force on Climate-related Financial Disclosures (TCFD) as well as other key leading standard-setters for sustainability reporting and has published two prototype documents. The first relates to climate-related disclosures and the second on general sustainability disclosures. The ISSB will consider the protypes as part of its initial work plan.
What is the timetable for the IFRS Foundation’s plans?
How does the new board fit within the structure of the IFRS Foundation?
Who will the new standards apply to?
Are there existing sustainability reporting standard frameworks and how do they fit into the IFRS Foundation’s plans?
What are the current sustainability reporting frameworks and what is their purpose?
Listed below are the key existing organisations in the field of sustainability reporting. While they share many characteristics and some of their work overlaps, the stakeholders that they serve vary and as a result their approaches and products differ, through a range of frameworks, standards or metrics. Currently implementation of their standards and frameworks is largely voluntary and market-driven. At COP26 it was announced that the VRF and the CDSB will be consolidated into the ISSB in 2022.
Value Reporting Foundation (VRF)
The IIRC (International Integrated Reporting Council) and SASB (Sustainability Accounting Standards Board) merged to form the Value Reporting Foundation which is an organisation that offers a comprehensive suite of resources designed to help businesses and investors develop a shared understanding of enterprise value —how it is created, preserved and eroded. The merging of the IIRC and SASB directly responded to calls from global investors to simplify the corporate reporting landscape.
Task Force on Climate-related Financial Disclosures (TCFD)
The TCFD was convened by the Financial Stability Board to produce a common global framework for companies wishing to report how climate change will affect their business. It is already part of mandatory reporting for certain entities in the UK and likely to underpin the ISSB’s work. However, as a private- sector task force it has no mandate or ability to set international standards and has not been established on a permanent footing.
Climate Disclosure Standards Board (CDSB)
The CDSB is an international consortium of businesses and environmental groups committed to advancing and aligning the global mainstream corporate reporting model to equate natural capital with financial capital.
Global Reporting Initiative (GRI)
GRI exists to help organisations be transparent and take responsibility for their impacts in order to create a sustainable future. The GRI has their own set of sustainability standards.
How do the IFRS Foundation’s plans interact with developments in the UK?
The UK government plans to introduce mandatory climate-related financial disclosure requirements, which are aligned with the TCFD recommendations, for certain entities as soon as April 2022. They have also stated their support for the development of international sustainability related reporting standards and have indicated an intention to subsequently align with international standards.
There is two-way support between TCFD and the IFRS Foundation on sustainability reporting. If the UK Government chooses to adopt the ISSB’s standards in the future, it is hoped that the common foundations between the TCFD framework and the ISSB’s standard on climate-related financial disclosures will help enable a smooth transition for companies.
For more information on TCFD reporting visit ICAEW's TCFD page.