Setting the Scene

Amidst evolving climate disclosure regulations, including the SEC’s final climate disclosure rule, the International Sustainability Standards Board (ISSB) has emerged as a junction for the convoluted landscape of sustainability reporting—with various frameworks and standards frequently referred to as “alphabet soup”. Established with the goal of streamlining reporting frameworks, ISSB strives to offer a cohesive and globally recognized standard for sustainability reporting. Unlike conventional compliance exercises, ISSB standards are geared towards fostering value creation by fully understanding and addressing sustainability risks and opportunities (fundamental to sustainability strategy).  As businesses continue to grapple with the convergence of voluntary disclosures and regulatory mandates like the EU’s Corporate Sustainability Reporting Directive (CSRD), the ISSB provides an opportunity to standardize reporting practices globally.

In 2024, the ISSB has outlined priorities to enhance its standards further, including development of S3 and S4 standards while refining S1 and S2. The integration of Sustainability Accounting Standards Board (SASB) standards into the ISSB framework marks a significant step towards harmonizing reporting practices. Specifically, the SASB standards can help shape ISSB identification of risks and opportunities by materiality, and SASB disclosure items that are quantitative are likely to move into the ISSB metrics and targets section, while qualitative likely fall into the other 3 pillars. With 15 jurisdictions (including UK, Japan, Canada, Amsterdam Hong Kong) gearing up to adopt ISSB S1 and S2, covering nearly half of global emissions, the convergence of reporting standards is already gaining momentum.

While other jurisdictions are ramping up their reporting capabilities, the U.S. Securities and Exchange Commission (SEC) voted on the long-awaited climate disclosure rule on March 6, 2024. The final rule does not require disclosure of Scope 3 emissions, and only requires disclosure of Scope 1 and Scope 2 emissions if material. This final ruling will further complicate compliance to sustainability reporting for global companies but will allow smaller firms that comprise the majority of U.S. companies to be exempt from reporting on their greenhouse gas emissions.

Highlights from the Symposium

Though various topics were discussed by keynotes and in panels at the IFRS Sustainability Symposium 2024, the methodology for Scope 3 emissions was flagged as a pain point for many. Acknowledging the complexities surrounding Scope 3 emissions, stakeholders have been struggling with the challenges posed by having different methodologies used across the 15 categories. It is imperative to standardize these methodologies, especially for category 15 (also known as “financed emissions”), given that 70-90% of risks are often embedded in Scope 3 emissions. Identification of these risks will be crucial to informed investor decision-making.

Collaboration also emerged as a frequent theme by speakers and panelists, highlighting the interdisciplinary nature of sustainability reporting. The convergence of ESG and sustainability teams with finance, risk, and audit functions highlights the necessity for a cohesive approach across the business. In some cases, mandatory disclosures such as the CSRD have catalyzed meaningful dialogue on sustainability and fostered cross-functional collaboration. However, there have also been political challenges in the US that have caused businesses to stifle public communication of their strategies and sustainability progress.

Distinguished keynote speakers at the symposium provided invaluable insights into various facets of sustainable finance and reporting. Michael Tovey, Corporate Sustainability Controller at Bank of America, shed light on financial institutions' role in driving sustainability initiatives and how they prepare for disclosures. Jay Eisenhardt, Director of Sustainability Integration at Northern Trust Asset Management, described the integration of sustainability considerations across the investment lifecycle. Nandini Sukumar, representing the World Federation of Exchanges, emphasized the critical role of stock exchanges in promoting sustainable finance. Nawar Alsaadi of Kamata Advisors underscored the significance of investor research in shaping decision-making processes related to sustainability.

While strides have been made in advancing sustainability reporting, the presence of protestors serves as a sobering reminder of the challenges ahead. Progress has been made across all sectors and was evidenced by keynote speakers and panel discussions, but there is still work to be done to enhance the role of reporting in sustainability. It can be challenging to strike a delicate balance of divergent views, particularly in the current US political landscape. However, with commitment and united efforts, the vision of a sustainable future is still within reach, catalyzed by robust sustainability strategy and disclosure.

The IFRS Sustainability Symposium 2024 served as a venue for honest discussions and collaboration, helping move toward the goal of harmonized and value-centric sustainability reporting. As organizations navigate the complexities of sustainability, integrating diverse perspective, and fostering cross-sectoral partnerships will be crucial to moving toward a more sustainable future.

Preparing for the Future

As the ISSB standards are adopted as common practice, encompassing not only the G7 but also a total of 15 countries that account for ~50% of global emissions, the areas that we recommend firms focus on to proactively prepare are:  

  1. Identification of Sustainability Risks and Opportunities: The identification of sustainability risks and opportunities is the basis for strategy in ISSB S1. This approach should include embedding sustainability risks and opportunities into the risk management framework to bolster organizational resilience and guide sustainability strategy.
  2. Strategic Engagement: Firms should actively involve their Finance function and consider appointing a dedicated 'Global ESG Controller' to spearhead compliance efforts, ensuring a holistic approach to sustainability reporting.
  3. Framework Alignment: Mapping relevant ESG frameworks to ISSB S1 and S2 requirements is crucial for consistency in reporting standards. By aligning data attributes from frameworks like SASB with ISSB requirements, firms can facilitate adoption and better inform strategy.
  4. Continuous Monitoring and Adaptation: Keeping track of IFRS Accounting Standards projects helps to clarify evolving accounting standards. Monitoring developments such as cost method adjustments and credit risk disclosures can help firms to improve their own reporting practices.
  5. Regulatory Readiness Gap Assessment: Conducting a comprehensive gap assessment of ISSB requirements against existing reporting processes and controls is important. The results will help firms to identify areas of enhancement and leverage existing infrastructure to comply to regulation more effectively.

By undertaking these measures, firms can more easily navigate the evolving regulatory landscape with confidence, ensuring compliance with ISSB/IFRS standards while advancing sustainability-driven value creation across the organization.  

To learn more about how Baringa can support your sustainability reporting journey, please reach out to Ayla Kanber, Justin Hartman, or Ryan Bohn

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