New proposals on the first IFRS® Sustainability Disclosure Standards mark the next step towards equal prominence for sustainability and financial reporting. The proposals aim to create a global baseline for investor-focused sustainability reporting that local jurisdictions can adopt or build into its own local requirements.
This is a critical milestone in the journey towards a consistent global baseline of investor-relevant sustainability reporting. The standards will drive transparency and enable investors to make more informed and so better decisions, making companies accountable for sustainability reporting in the same way as they are for financial reporting.
A new era for reporting
The two Exposure Drafts published on 31 March 2022 – covering general requirements as well as climate-related disclosures – are the first to be released by the newly formed International Sustainability Standards Board (ISSBTM).
These standards are being developed at a much faster pace than IFRS Accounting Standards. The first standards could be finalised within the calendar year. Individual jurisdictions, including Australia, will decide whether and when to adopt.
Some companies may choose to adopt the final standards voluntarily, for instance those responding to investor or societal pressure. Therefore, reporting could be as soon as 2022 for those companies with a 31 December year end.
Driving global consistency
Under the proposals, companies would report on all relevant sustainability topics (not just on climate-related risks) across four content areas that are consistent with TCFD1 – i.e. governance, strategy, risk management, and metrics and targets. Companies would provide globally consistent disclosures that focus on how sustainability topics affect enterprise value.
Connecting sustainability and financial reporting
Reporting would be connected to the financial statements and released at the same time. Therefore, companies will need processes and controls in place so that they can provide sustainability information of the same quality, and at the same time, as their financial information.
Getting ready now is critical even if the final standards are not identical to the proposals. Companies that already have the processes in place to produce similar sustainability-related information are likely to find reporting under the final standards easier.
In getting ready we urge companies to take an integrated approach in their reporting and seek to understand how all relevant ISSB standards, as they are developed, have been considered, addressed and reported on, where material, from the governance, strategy and risk perspectives with metrics in the performance section where material. Without an integrated approach, companies risk multiple siloed, lengthy and potentially duplicative disclosures for each ISSB standard, rather than explaining the implications and actions taken for all standards within the relevant section (i.e . governance, risk and performance) of the report.
What does this mean for Australia?
The Australian Accounting Standards Board is actively considering the release of these standards in Australia, and is separately seeking feedback on the ISSB Exposure Drafts to inform the AASB as to the appropriateness of and support for its proposed approach to sustainability-related financial reporting in Australia.
The AASB has already formally endorsed its support of the voluntary adoption of the recommendations made by the TCFD. The statement is an interim position and a means of providing direction for stakeholders prior to the AASB developing any mandatory reporting requirements for sustainability-related financial information.
What do you need to do now?
Educate your organisation on sustainability-related risks and opportunities and what they mean for the company.
Establish a board-led governance structure that brings both finance and sustainability reporting to the boardroom table when making commitments, decisions and reporting on sustainability-related issues.
Engage with current process owners and understand how information is being defined, captured and reported, and where there are control gaps.
Expand your systems, processes and controls to create efficiencies and move certain aspects of the data collection and calculation process into existing or new systems and processes.
Read our guide for a high-level summary of the issue, the impact, and these next steps - including ten key questions that can help you with your preparations.
Read our publication below which provides a more detailed analysis on the Exposure Drafts and explores some of the key impacts, and how companies might apply the proposals, using our insight and illustrative examples.
Sustainability reporting continues to develop at a fast pace. Three sets of proposed standards are open for comment: from the ISSBTM Board, the US Securities Exchange Commission (SEC) and the European Financial Reporting Advisory Group (EFRAG) with submission deadlines from 17 June 2022 (SEC) to 8 August 2022 (EFRAG). Read our publication comparing proposals from the ISSB, EFRAG and SEC.
Have your say
The ISSB Board has requested comments on the Exposure Drafts by 29 July 2022. We encourage preparers and users of financial statements to read and comment on the proposals.
Further the AASB has requested comments on its Exposure Draft by 15 July 2022. Note that the AASB is requesting specific comment on a number of matters to inform the Australian context in particular.
For further information on the proposals, speak to your KPMG contact.
How KPMG can help
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1. Taskforce on Climate-related Financial Disclosures.