Several country, regional and international reporting standards have completed their due process and are set to take effect, in some cases, as early as 2025.
The International Sustainability Standards Board (ISSB), European Financial Reporting Advisory Group (EFRAG) and other major standard setters have established their baseline sustainability reporting standards, additionally, the International Audit & Assurance Standards Board (IAASB) has published their international sustainability assurance standard (ISSA5000) and during the December 2024 Board meeting, the International Ethics Standards Board for Accountants (IESBA) approved their sustainability ethics standard (IESSA, Part 5[1]) completing the trifecta of levers[2] to protect the public interest in sustainability matters.
Figure 1: Trifecta of Standards for High Quality Sustainability Standards, copyright DW Group 2024
The “So What Now” Scramble is Underway!
Unsurprisingly, preparers around the world are undertaking assessments to identify the sustainability matters relevant to their business model(s) so they know which items need reporting upon. This analysis is identifying existing gaps in data, process and systems which will ultimately require remediation and integration into the organization’s strategic and operating activities.
You may wonder about the purpose of standard setting in sustainability, and its relative speed to market. It comes down to the real driver behind sustainability reporting legislation or regulatory requirements – behavioural change. Some standard setting boards argue that their role is not about change – it is about transparency and consistency. While standards undoubtedly drive transparency and consistency, amongst other things, at their core they ultimately ensure alignment to what interested groups seek, which is at the at the heart of change.
Interested parties (such as investors, employees, and policy makers) seek specific outcomes which often differ from past outcomes. For instance, investors seek a balanced risk to return outcome which is derived from an organization’s activities. If business activities result in adverse water pollution, for example, investors may well avoid such investments (or diversify existing holdings) which in turn signals to the company that it needs to change its activities if it wants to remain financially viable. Similarly, employees (current or future) desire meaningful roles and careers in organizations that fulfill a purpose-based objective, absent which talent flocks to other organizations more closely aligned with their purpose-based needs leaving the preparer at a competitive disadvantage.
A Constructive Way Forward
The key to the trifecta of sustainability standards working in the public interest is arguably simple, they need to be:
- Understandable – clear and simple language
- Practical – workable and operational in practice
- Accessible – user-friendly (easy to manoeuvre through)
- Connected – common definitions and concepts (linking ethical practice to assuring and then publishing external reports)
No doubt, this list is easily expandable, however these core principles need to be met to ensure standards fundamentally work together towards a common objective: adoption and implementation (A&I).
The good news is that cross-discipline and cross-jurisdictional standard setters often collaborate to ensure their respective standards work in a practical and cohesive way with each other; facilitating the adoption by companies embedding them within their business operations.
Perhaps the even better news is that standard setters recognize that the best written standards in the world mean very little if they are not adopted and implemented. To that end, a great deal of effort is currently going into implementation guidance and support for sustainability standards from the IFRS Foundation, EFRAG, IAASB and IESBA, and these bodies often collaborate to support each other’s A&I efforts.
Stay Tuned…
The sustainability landscape will continue to evolve and strengthen over time, it is inevitable if we are to ensure the continued co-existence of people, planet and profit!
Watch this space for updates in the months ahead as reality sets in, good business practices start to emerge and regulators clarify their expectations.
[1] Subject to PIOB Due Process Review and Endorsement in January 2025.
[2] Figure 1: Trifecta of Standards for High Quality Sustainability Standards