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The Convergence of Global ESG Reporting Frameworks

Part 1

Following our previous blog on the SEC’s new reporting requirements, the corporate sustainability reporting landscape is transforming significantly. Investors and stakeholders increasingly call upon companies around the globe to provide transparent, trustworthy, and comparable sustainability performance data. Traditionally, the absence of universally adopted frameworks has led to varied practices in sustainability reporting, sparking concerns about the information’s reliability, relevance, and comparability.

In the first installment of our series, we’ll explore the International Sustainability Standards Board (ISSB), brought to you by the International Financial Reporting Standards (IFRS) Foundation. Our second piece will delve into the Corporate Sustainability Reporting Directive (CSRD), and the final part of our trilogy will offer an in-depth look at Sustainability Reporting Requirements by Country.

What are the IFRS Sustainability Disclosure Standards?

The IFRS Sustainability Disclosure Standards were created through the ISSB’s efforts to improve sustainability information disclosure.

Since its launch in November 2021, the ISSB has reviewed feedback on two standards (IFRS S1—General Requirements for Disclosure and IFRS S2 Climate-related Disclosures). This international framework for sustainability reporting offers investors and other interested parties consistent and comparable information on companies’ sustainability performance.

Bridge Girder Structure

IFRS S1 (i.e. Framework 1)

IFRS S1 refers to the first phase of the ISSB’s work, which involves developing the foundational elements of the sustainability reporting standards.  This includes defining the scope of the criteria, establishing the principles that will underpin them, and developing guidance on how to measure and report on sustainability issues.  The critical concepts of Framework 1 include:

  • Sustainability reporting principles guide: The critical characteristics of high-quality sustainability reporting such as materiality, completeness, and stakeholder inclusiveness.
  • Sustainability reporting scope: This includes guidance on the types of sustainability issues that should be reported on, the boundaries of the reporting organization, and the types of disclosures that should be made.
  • Sustainability reporting guidance: This includes advice on measuring and reporting sustainability issues, including standardized metrics, reporting frameworks, and verification and assurance.

IFRS S2 (i.e. Framework 2)

IFRS S2 refers to the second phase of the ISSB’s work, which focuses on developing specific sustainability reporting standards that apply to different sectors and industries.  This phase, released on 30 September 2021 by ISSB, involves extensive consultation with stakeholders to ensure that the standards are relevant, practical, and valuable for different organizations.  The final version of the ISSB Standards was released on June 26, 2023.

  • Sector-specific standards: These standards will guide the types of sustainability issues that are most relevant to specific sectors and industries, such as agriculture, energy, or healthcare.
  • Double materiality: This concept recognizes that companies not only impact the environment and society but are also affected by the environmental and social context in which they operate. Double materiality refers to the idea that companies need to disclose both the impacts they have on the environment and society and the risks and opportunities presented by environmental and social factors to the company’s business model, financial position, and future prospects.
  • Climate-related risks and opportunities: This concept refers to the risks and opportunities presented to companies by climate change, including physical risks such as extreme weather events, transition risks such as policy and regulatory changes, and opportunities such as the shift to a low-carbon economy.
  • Scope and boundaries: This concept refers to the need for companies to define the scope and limitations of their sustainability reporting, including the issues that are material to their business and the stakeholders relevant to their operations.
  • Metrics and targets: This concept refers to the need for companies to disclose specific metrics and targets related to their sustainability performance, such as greenhouse gas emissions, energy use, water consumption, and waste management.
  • Assurance: This concept refers to the need for independent assurance of sustainability reporting to assure stakeholders that the information disclosed is reliable and accurate.
Canadian Parliament Building side view

Has Canada adopted ISSB?

In Canada, regulators monitor ISSB developments that could influence their approach to future regulations. The Canadian Securities Administrators (CSA), which regulates reporting standards for Canadian public companies, is considering applying disclosure requirements of climate-related issues to its mandatory filings. The ISSB’s sustainability reporting standards are not mandatory.  It is up to individual jurisdictions to decide whether to apply IFRS Sustainability Disclosure Standards.

How does a company comply with the ISSB standards?

To comply with Framework 1, a company would disclose material information about all significant sustainability-related risks and opportunities to which it is exposed.  This information would need to be disclosed as a part of the company’s general-purpose financial reporting.  This information will enable an investor to assess the effect of climate-related risks and opportunities on the company.  It would require a company to centre its disclosures on the consideration of its business’s governance, strategy and risk management and the metrics and targets it uses to measure, monitor and manage its significant climate-related risks and opportunities.

To comply with Framework 2, a company would disclose information enabling an investor to assess the effect of climate-related risks and opportunities on the company.  It would require a company to centre its disclosures on the consideration of its business’s governance, strategy and risk management and the metrics and targets it uses to measure, monitor and manage its significant climate-related risks and opportunities.  Framework 2 incorporates and builds on the Task Force on Climate-related Financial Disclosures (TCFD) recommendations and includes industry-based disclosure requirements based on Sustainability Accounting Standards Board (SASB) standards.

Financial Report with Men

The Transformative Power of IFRS Sustainability Disclosure Standards

The IFRS Sustainability Disclosure Standards marks a significant milestone in the journey towards standardized sustainability reporting. By offering a common language for sustainability performance, these standards are set to revolutionize how companies communicate their ESG initiatives. Their implementation will benefit investors and enhance the global corporate sector’s accountability and transparency, underscoring the indispensable role of standardized reporting in today’s corporate landscape.

For organizations navigating these waters, the path forward involves more than just understanding these evolving standards; it’s about effectively integrating them into your strategic planning and reporting processes. This is where Shift Critical steps in. With our deep expertise in ESG strategy and reporting, Shift Critical offers tailored solutions that ensure compliance with these burgeoning standards and position your company as a leader in sustainability. Leveraging our services, you can transform ESG reporting from an obligation to a powerful tool for strategic advantage, stakeholder engagement, and long-term value creation.

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