Sustainability reporting: interoperability key to its success

Sustainability reporting: interoperability key to its success

The ISSB are aiming to implement its sustainability standards in 2023

Sustainability reporting: interoperability key to its success

A firm’s understanding of the hierarchy of sustainability frameworks is a “big worry” but the International Sustainability Standards Board (ISSB) will do all it can to make this clear, according to PWC’s global reporting leader, Nadja Picard.

The ISSB, founded in 2021, is looking to finalise a global baseline for sustainability standards in 2023 as firms around the globe face varying frameworks, standards, and regulatory disclosure requirements.

The ISSB believes this will help avoid multinationals having to comply with the differing requirements in various jurisdictions. A global baseline will reduce further fragmentation of reporting demands.

“The ISSB has been very transparent about undertaking a very in-depth analysis around the interoperability of the ISSB standards with the European Sustainability Reporting Standards (ESRS) and where they map disclosure requirements by disclosure requirement” says Picard.

Picard believes that formally there may be differences between varying frameworks, but there will also be vast overlaps between them. For example, the scope of ESRS’ will mean that firms will also be working within the ISSB baseline standards.

Laura Tibbetts, a member of Grant Thorntons Financial Accounting Advisory Services team, echoes this assessment. She strongly supports the ISSB’s work, saying it is important to have an international standard so “everyone is singing from the same hymn sheet.”

“Europe is slightly different, going above and beyond that global baseline, and I imagine certain jurisdictions may do similar things. But we need to have a minimum level there that investors, and other users of corporate reporting have comparability” she notes.

“The new word for this is interoperability. How does it fit together so that it’s easily understood, there’s no misunderstandings and no misconceptions for firms,” Picard adds.

Currently, the ISSB standards only cover climate-related issues, requiring companies to disclose any significant climate-related risks, such as floods and other extreme weather events.

The second ISSB rule would require companies to share information on how they manage, measure, and monitor certain sustainability risks.

The ISSB aim enact these requirements as early as possible in 2023.

1448 data points for European standards

Large European companies will have to comply with the European Financial Reporting Advisory Group (EFRAG) reporting requirements as well as the ISSB global requirements.

Under the current draft of the EFRAG requirements there are 1448 data points that firms will be required to report on, and Picard believes this could become “burdensome.”

“All these data points have to be found somewhere in the company. Some of them are a lot more difficult than others.”

At present, the European standards cover far more topics than the ISSB requirements, but all parties should be patient with one another to “sharpen the initial quality” of reported data, according to Picard.

UK response to ISSB requirements

The current economic climate of the UK may present additional challenges for firms to combat alongside new reporting requirements. Tibbetts believes the government has currently scaled back the requirements to just larger corporates in order to help UK companies.

“It’s typically going to require a lot of work to get to that baseline view. But I think hopefully in the future, it will pay dividends,” he adds.

Picard sympathises with the resource constraints businesses are facing at present but says “everybody wants that [reporting] transparency and there is also a growing urgency in the societies to address the issues now.”

Assurance critical to ESG reporting

Speaking at the Accounting for Sustainability (A4S) Summit in December 2022, Jane Diplock AO, director of Singapore Exchange Regulatory Company spoke of the importance of rigorous auditing to tackle greenwashing.

Tibbetts mirrors this view saying the reason why we can place so much reliance and credibility on financial reporting is because of the “assurance framework that sits behind around it.”

While there are no mandatory assurance frameworks in the UK, Tibbetts admits that she would not be surprised if the UK follow Europe in implementing assurance requirements in the future.

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