It is safe to say that in the year 2021, there was no conversation about investing or corporate reporting where the term ESG was not used. The measurement and reporting of Environmental, Social, and Governance metrics is now considered the backbone of efforts toward net-zero economies.
Moreover, the investor community has never been more demanding of companies as to the impact of their activities on the environment as well as society. In the corporate reporting space, efforts are being made by various sustainability accounting bodies to develop a set of globally-accepted standards. These efforts are poised to meet the increasing demand for ESG information and solve the problem posed by ESG reports that use a patchwork of various sustainability standards.
Some of those efforts are spilling over into 2022 and will continue for years to come. Mandatory sustainability reporting requirements continue to be brought in. And so here are just three developments on the ESG front that every jurisdiction will closely observe to draw lessons from. There are many more developments taking place, but we have chosen to focus on these three as the most-watched-out-for…
Leading sustainability standards setters to merge into the new ISSB
The International Financial Reporting Standards (IFRS) Foundation November 2021 announced the formation of the International Sustainability Standards Board (ISSB) which will work toward creating a comprehensive set of baseline sustainability disclosure standards. The IFRS Foundation also announced that the world’s leading investor-focused sustainability disclosure organizations will consolidate into the new ISSB by June 2022.
The organizations are namely the Climate Disclosure Standards Board (CDSB) – which is an initiative of the Carbon Disclosure Project – and the Value Reporting Foundation (VRF) – which was formed by a merger of the International Integrated Reporting Council (IIRC) and the Sustainability Accounting Standards Board (SASB).
European Commission to adopt new EU Sustainability Reporting Standards
The European Financial Reporting Advisory Group (EFRAG) and the Global Reporting Initiative (GRI) in July 2021 started collaborating to construct the new EU sustainability reporting standards. Companies in the EU will use those sustainability standards to report information under the Corporate Sustainability Reporting Directive (CSRD) proposal.
The European Commission is set to adopt the first set of sustainability reporting standards, developed jointly by EFRAG and GRI, by October 31, 2022. The EFRAG recently released a detailed five-month status report of its work and said it is on track to release the first set of standards by mid-2022 and a broader set of standards by mid-2023.
Mandatory sustainability disclosures under TCFD recommendations in the UK
Mandatory climate-related disclosures based on the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) will kick off for roughly 1,300 large registered companies and financial institutions in the UK from April 6, 2022. Entities within the purview of the reporting requirements are the UK’s largest traded companies, banks, insurers, and private companies with more than 500 employees and £500 million in turnover. This mandatory disclosure requirement fits within the plan to introduce TCFD disclosures across the UK economy by 2025.
Follow the IRIS CARBON® blog for updates from the ESG and sustainability reporting space.
