Collaboration and a commitment to building on a global baseline are the keys to embedding sustainability reporting into an organisation’s value creation proposition.
This was one of the main conclusions drawn from a recent sustainability symposium hosted by the IFRS Foundation in New York. Delegates heard how sustainability is not just about disclosures but also about communicating how a business is operating and responding to changes in its external landscape.
Unleashed potential
Recognising that the IFRS Sustainability Disclosure Standards (IFRS S1 and IFRS S2) are effectively less than two years old, delegates were reminded that the standards were built on the firm foundations of organisations such as the Value Reporting Foundation and the Climate Disclosure Standards Board. Nevertheless, the standards are now helping to build a global baseline for sustainability reporting.
The ISSB was now talking to a number of jurisdictions, a ‘myriad’ of companies and many investors
A key moment came in July 2023 when the International Organization of Securities Commissions endorsed the two new standards. ‘This unleashed [their] potential to reach more than 140 countries,’ said Emmanuel Faber, chair of the IFRS Foundation’s International Sustainability Standards Board (ISSB). ‘They endorsed our standards with a view that jurisdictions should consider ways to adopt or use the standards in a manner that promotes a comparable, consistent global language that we are proposing.’
Faber added that, based on this endorsement, the ISSB was now talking to a number of jurisdictions and a ‘myriad’ of companies that are looking to now adopt the standards, as well as many investors.
‘We need to create a building block to have a global integrated market’
Nations’ interest
Joao-Pedro Nascimento, chair of CVM, the Brazilian Securities and Exchange Commission, said that Brazil was the first country to adopt IFRS S1 and IFRS S2 in a bid to position itself as a ‘leader and protagonist’ among the Global South.
‘We need to create a building block to have a global integrated market,’ he said. ‘Adoption of the standards will be voluntary in 2024 and 2025, so as to not place burdens on market participants, but following a public consultation, they will then become mandatory from 2026.’
Japan is another country that is reporting enthusiastic support for the standards, though it is taking a different path, according to Satoshi Ikeda, chief sustainable finance officer and deputy commissioner for international affairs at the Financial Services Agency of Japan.
‘It is like transplant surgery where we need to make sure all of the blood vessels are connected’
‘We are creating our own standards, but they will be functionally aligned with those of the ISSB,’ he said. ‘We have a system in place, but it is like transplant surgery where we need to make sure all of the blood vessels are connected.’
The Japanese agency is working with other Asian standard-setters to ensure that they are all aligned with the global baseline of IFRS S1 and IFRS S2 for greater consistency and comparability. ‘This is fundamental to investor protection,’ Ikeda added.
Likewise, Nascimento predicted that those jurisdictions that are consistent with the global framework would reap the benefits, though Ikeda warned about the risks of ‘boilerplate’ disclosures. ‘If we have that, then we would have failed,’ he said.
Scope 3 complexity
Representing the global investment market, Eric Pan, president and CEO of the Investment Company Institute (ICI), pointed to some of the challenges that lie ahead with sustainability reporting.
Using the reporting of greenhouse gas (GHG) emissions as an example, he explained that ICI members wanted all types of information, and that while Scope 1 and Scope 2 emissions reporting was well developed, concerns were being expressed that Scope 3 – which entails reporting the GHG emissions of an organisation’s supply chain – revealed gaps in data and methodology.
‘Scope 3 is the poster-child of information that, if material, will be decision-useful’
‘[Scope 3] emissions calculations are incomplete, there is a lack of clarity and its reporting is subject to wide discretion, he said, adding that he believed data that is difficult to assess will be least likely to be reported. But he remained optimistic, observing that as more companies made their Scope 1 and 2 emissions data available, there would be an improvement in Scope 3 emissions reporting.
Faber further reassured the audience that ‘Scope 3 emissions data is in hand; it is the poster-child of information that, if material, will be decision-useful’.
Practical challenges
So, what are the practical challenges of adopting the IFRS S1 and IFRS S2? Tobechukwu Okigbo, MTN Nigeria’s chief corporate services and sustainability officer, shone a spotlight on some of the challenges the telecommunications company is facing.
Nigeria, like Brazil, is an early adopter of the new standards. MTN Nigeria had been using Global Reporting Initiative standards, but it has now moved to the IFRS Sustainability Disclosure Standards. Getting the right people committed to the new process was important.
‘The CFO is the most important person, as the process is going to cost money’
‘The tone at the top needs to be correct,’ Okigbo said. ‘The board needs to be onboard, and the CFO is the most important person, as the process is going to cost money. ‘We need to embed sustainability into the business, and need to convince [the business] of the benefits. This requires good stakeholder management, so we need to get the right support from the right executive.’
Like MTN Nigeria, Bell Canada Enterprises (BCE) had already been reporting on sustainability through the use of earlier frameworks – in this case, the Integrated Reporting framework. Catherine Goyer, director of corporate responsibility and environment at BCE, said the integrated report, with which her CEO was closely involved, helped to disclose financial and non-financial information in the same report.
‘The move from voluntary to mandatory reporting is another game’
‘It is a strong message to our external stakeholders that [sustainability] is embedded in the business,’ she said. ‘[Internally] it requires teamwork, but it comes from the top.’
Returning to the theme of communication, Melissa Bird, senior finance director at Johnson & Johnson, emphasised the importance of providing clearer messages and meaningful information. ‘This will lead to a crisper report,’ she said. ‘We have been reporting on sustainability for many years, but the move from voluntary to mandatory reporting is another game.’
Tips for implementation
Melissa Bird, senior finance director at Johnson & Johnson, told the symposium of the steps required to collect emissions data, describing it as similar to the process that had been used for Sarbanes-Oxley compliance:
- Identify all the functions involved in data collection.
- Explain why you need strong processes and provide education/training.
- Build out accountability.
- Understand existing processes so you can leverage what already exists, identify where there are gaps in the process and add controls.
- Set up training sessions and explain why you are doing this.
- Build more structure into the processes; people will appreciate this.
- Accept that there will be the need for a lot of change management.
- Get ahead of this before it becomes a regulatory requirement.
Brian Finch, vice president for ESG governance and reporting at Mastercard, which began to prepare for IFRS S1 and S2 two years ago, added the following pointers:
- You will need new technology.
- There will be new processes and controls.
- Voluntary disclosures will live on.
- The conversation must be deepened and broadened so that all stakeholders understand the impacts, risks and opportunities of sustainability reporting.
More information
See ACCA’s report Sustainability reporting – the guide to preparation
