Sustainability Reporting Standards – can the world sing in perfect harmony?
Anne Adrain, Head of Sustainability and Reporting, highlights the need for harmonisation in the development of global sustainability standards.
In a world where, traditionally, developments in financial reporting have rarely tended to move quickly, the speed with which standard setters have positioned themselves to tackle the issue of sustainability reporting is impressive.
But is speed the right motivation?
For those who have long been arguing for greater convergence and harmonisation in the sustainability reporting landscape, the answer is undoubtedly yes. And those who recognise the need for greater urgency in tackling the issue of climate change would most likely agree.
But is it the right motivation for the achievement of the wider sustainable development agenda? And is the initial focus on climate change too narrow?
UN Sustainable Development Goals (SDGs)
The UN Sustainable Development agenda 2030 is based on the premise that no-one is left behind. Articulated in the 17 UN Sustainable Development Goals (SDGs), the 2030 Sustainable Development agenda pledges, amongst other things, to eradicate extreme poverty, promote mental health and wellbeing and provide quality and inclusive education for all.
The 17 goals are all connected and, using the UN’s own word, ‘indivisible’. Only by achieving all 17 goals, and their related targets, will we achieve the 2030 agenda.
SDG 13 addresses the issue of climate action and the need for urgent action to tackle climate change and its impacts. This reinforces the need for speed and the urgency required. However, it is worth noting that the SDGs were launched in September 2015, over six years ago, yet only now are we seeing a step change in the pace of action and response. Hardly what one might consider an urgent response.
Standards setters, regulators and governments now have the issue of climate change firmly in their sights and the raft of regulatory and legal requirements being proposed and introduced globally to mandate climate change reporting is sizeable.
Current state of play in the sustainability reporting developments
The IFRS Foundation consulted in September 2020 on whether there was a need for globally accepted sustainability reporting standards and whether they should play a role in their development. They received broad support to take on this responsibility and we can expect an announcement imminently on the composition of a new board, the International Sustainability Standards Board (ISSB), that will oversee this process.
The European Commission has also been quick to issue their proposal for a Corporate Sustainability Reporting Directive (CSRD) which will amend the existing reporting requirements of the Non-financial Reporting Directive (NFRD). The CSRD envisages the adoption of EU sustainability reporting standards which would be developed by the European Financial Reporting Advisory Group (EFRAG). How closely aligned these EU standards will be with those issued by the ISSB remains to be seen, but there is already some clear divergence between the two proposals.
The target audience of the ISSB sustainability standards will be the primary users of financial statements, i.e. investors and other capital market participants, whereas the proposed CSRD has a wider stakeholder focus. The ISSB has also restricted its initial activities to climate change, in recognition of the need for increased urgency in that area. However, the CSRD incorporates sustainability in its wider context in recognition that, if we are to meet the UN 2030 Sustainable Development Agenda, then we need to focus on the other environmental factors and the social aspects of sustainability.
Collaboration is key
Ultimately, however, all parties are working towards the same objective – the creation of a society in which every individual has the same opportunity to thrive and prosper in a world where economic growth does no significant harm to the environment or society. So perhaps we should draw inspiration from SDG 17 – Partnership for the Goals, and commit to working together in harmony, sharing our collective knowledge and resources, to reach that ultimate common goal.