A new suite of global climate and sustainability disclosure standards is on the way and companies can start preparing now, according to EY climate change and sustainability services partner Terence Jeyaretnam.
The IFRS Foundation, which develops global financial reporting standards, yesterday announced the establishment of an International Sustainability Standards Board.
The Board will develop "high-quality" IFRS sustainability disclosure standards designed to ensure global financial markets have access to clear and comparable data on the climate and sustainability performance of businesses.
The IFRS standards will build on several well-known existing regimes.
In particular, the new standards will draw heavily on the SASB sustainability standards, which have been strongly supported by investors.
SASB comprises 77 standards, each of which focuses on a core set of financially-material sustainability topics relevant to a particular industry, and more than half the companies in the S&P Global 1200 Index now use them in their communications to investors.
The IFRS standards will also draw on the Integrated Reporting Framework, and the reporting guidance developed by the Carbon Disclosure Standards Board.
The administrators of these various standards – as well as the developers of the TCFD climate-risk disclosure regime – have welcomed the prospect of new IFRS standards that leverage their content to establish consistent, global sustainability disclosure standards.
As a first step, the new IFRS-backed Board (which has members drawn from the bodies that administer the pre-existing reporting frameworks) has released prototype climate and general disclosure requirements drawn from the existing regimes.
Alignment review
EY's Jeyaretnam – who is also a senior advisor to SASB – told Footprint the new IFRS standards would consolidate the various existing regimes and ensure that companies provide the sustainability information "that investors want to see".
Jeyaretnam recommended that companies start preparing by doing "an alignment review" with the relevant SASB standards for their sector.
SASB whittles reporting requirements down to the indicators that are material for each sector, providing "a much easier starting point", he said.
Although ASX-listed companies including AGL, BHP, Boral, Transurban and Westpac have been using SASB standards for several years, they are still not widely used in Australia, Jeyaretnam noted.
However, experienced sustainability reporters are likely to discover that they already have a high level of congruity with SASB, he said.
Companies should also start leveraging the guidance provided through the Integrated Reporting Framework, and by the Carbon Disclosure Standards Board, Jeyaretnam said.
In addition, they should closely monitor the development of the new global standards, he said.
Boards should also consider including more information in their annual reports on ESG factors and how they are contributing to company value, he recommended.
More rigorous requirements
Jeyaretnam cautioned that the emergence of new global, investor-focused sustainability standards meant "the rigour in sustainability reporting is going to go up drastically".
CPA Australia, which represents the accountancy profession, expressed a similar view.
The new board will give investors, businesses, governments and regulators "a global institution to rally around", said CPA general manager of external affairs, Dr Jane Rennie.
"This will elevate sustainability reporting to the same level of rigour and acceptance as financial reporting," she said.
"This news will be manna from heaven for investors, for whom sustainability data – particularly climate-related information – has long been a blind spot."
Rennie urged the government and relevant regulators to incorporate the new standards into Australia's corporate reporting system.
