Impending new ESG disclosure standards, and the possibility that some might become Australian accounting standards, make it important for all companies to review their ESG reporting practices, according to EY partner Terence Jeyaretnam.
There is plenty of action on the ESG disclosure front, Jeyaretnam noted.
A new International Sustainability Standards Board (ISSB) is developing standards that will draw on the SASB sustainability standards, which until recently have been somewhat US-centric, and on the Integrated Reporting framework.
As well as drawing on SASB, the ISSB standards will reference TCFD climate disclosure recommendations, and are likely to factor in the TNFD nature risk and dependence disclosure measures that are currently under development.
Meanwhile, the organisation behind the GRI regime – which has been widely used in Australia as a sustainability reporting framework – is working with the EU, as it develops European Sustainability Reporting Standards.
Primary focus should be ISSB standards
Jeyaretnam, who is an EY climate change and sustainability services partner and a senior advisor to SASB, has some pointers for sustainability executives grappling with what these developments mean for their ESG reporting.
He recommends that businesses view the emerging range of standards under development as a hierarchy.
At the top will be the ISSB standards, which will focus on ESG matters that are material for investors. Alignment with these standards "is something everyone will need to have", he told Footprint.
That will be especially true if the Australian Accounting Standards Board (AASB) adopts them, Jeyaretnam noted.
If that occurs, "they will carry all the weight of accounting standards", he said.
Sitting just below ISSB standards, and largely incorporated into them, will be the SASB sustainability standards, the Integrated Reporting framework, TCFD, the emerging TNFD nature disclosure regime, and the Carbon Disclosure Standards Board guidance.
As the ISSB standards grow in importance, a large number of companies that have done little or no ESG reporting and don't have good ESG data management practices in place are going to be in for a significant amount of work, particularly if the AASB adopts them, he said.
Jeyaretnam noted that, because the GRI framework doesn't focus just on matters material for investors, but instead looks at broad stakeholder materiality, alignment with it won't be as crucial.
However, that same feature is also GRI's strength, because it provides a framework for reporting on issues that are not immediately investor-critical, but are still of broad concern or point to an emerging issue – for example plastics in the environment, he said.
For issues like this, companies might still draw on GRI as guidance, he said.
Jeyaretnam added that the UN Sustainable Development Goals were of limited relevance in efforts to strengthen ESG reporting by companies in Australia, despite their popularity.
That's because although the SDGs provide a way to group sustainability issues, companies can't use them to accurately measure their progress, he said.
Growing influence of SASB
Jeyaretnam recommends that over the next 12 months to two years, sustainability professionals should expect SASB standards and Integrated Reporting to have "quite a bit more influence".
Ensuring alignment with TCFD and keeping a watch on TNFD and the emerging ISSB standards will also be important, he said.
For companies that are already well advanced in their ESG disclosure practices, Jeyaretnam suggests a review of ESG data governance practices can still be worthwhile, given that some ESG standards could soon have the status of accounting standards.
