Momentum is rapidly growing to address the key issues within the environmental, social and governance (ESG) framework. This move is changing how businesses assess their own purpose and performance and creating a need for new standards concerning ESG reporting and assurance.
ESG reporting and assurance is essential for building trust. Stakeholders – from investors to employees, customers and the wider public – are calling for greater transparency in evaluating an organization’s ESG performance. To respond accordingly, we need consistent and reliable ESG reporting, as we have with financial reporting. ESG information and metrics should be gathered, measured, communicated and assured with the same rigor and level of technical detail as financial information.
Additionally, businesses can only gain the trust of stakeholders if the information they report is robust and independently verified. Organizations will need to develop new processes, controls and data streams in their effort to ensure the information they provide withstands the scrutiny of an auditor’s probe in assuring them.
Corporate Sustainability Reporting Directive (CSRD)
Recently the European Commission launched a proposal for a Corporate Sustainability Reporting Directive (CSRD) to replace the existing Non-Financial Reporting Directive (NFRD). The latest Directive should improve the sustainability reporting of organizations and lead to more transparency, as well as comparability of data. The reporting requirements will become more extensive, more stringent and will apply to a broader scope of organizations, increasing the number of firms that will have to comply by up to tenfold.
In addition, the EU Taxonomy Regulation is being further developed with a classification system that allows companies and financial market organizations to identify sustainable economic activities.
Read more: Taking the next step in non-financial reporting.
International Sustainability Standards Board (ISSB)
Meanwhile, the IFRS Foundation announced the creation of an International Sustainability Standards Board (ISSB), which will focus specifically on developing reporting standards for climate and sustainability-related matters. The IFRS Foundation is aiming to put sustainability reporting on the same footing as financial reporting by establishing a sister body to the International Accounting Standards Board (the IASB® Board). The goal is to encourage globally consistent, comparable and reliable sustainability reporting, using a building blocks approach.
The first IFRS® Sustainability Disclosure Standards signal the next step towards establishing equal importance for sustainability and financial reporting. Their aim is to create a global baseline for investor-focused sustainability reporting. To achieve that goal companies would have to report on all relevant sustainability topics (not just on climate-related risks) across four content areas that are consistent with the Task Force on Climate-related Financial Disclosures: governance, strategy, risk management and metrics and targets. Companies would provide information that reflects how sustainability topics affect enterprise value.
Companies need to start preparing for reporting based on these new proposals. They will have to develop processes and controls that provide sustainability information of the same quality and timeliness as their financial reporting. Getting ready now is critical even if the final standards are not yet identical to those proposed. Companies that already have the processes in place to disclose their sustainability-related data are likely to find reporting, under the final standards, easier and less time consuming.
Read more: Get ready for ISSB sustainability disclosures - KPMG Belgium (home.kpmg)
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