New standards provide strategic opportunities
This week, the IFRS Foundation launched the International Sustainability Standards Board (‘ISSB’). This is momentous, not just in terms of corporate reporting, but also in the fight against the climate crisis and wider sustainability issues.
The ISSB standards will provide a common global reporting framework, akin to the existing International Financial Reporting Standards (‘IFRS’) issued by the International Accounting Standards Board (‘IASB’).
For too long, the number of sustainability standards has provided a “get out of jail free” card for many organisations – blaming the complexity and confusion of sustainability reporting requirements for not measuring the right sustainability metrics, and consequently not taking appropriate action.
But what gets measured, gets managed. And therefore, to drive the right strategic decisions across our organisations, we need to make sure that we are measuring the right things and provide transparent information for investors and other stakeholders to determine how this impacts our financial value. The ISSB framework will enable this by changing:
- how actions around sustainability are reported to the market;
- how climate and broader sustainability issues impact value in the short, medium and long term; and
- the way companies view and manage their strategic risks;
This is a pivotal moment – implementing the new Board’s future standards has the potential to change the way that Boards and investors make financial investment decisions in the coming years.
The IFRS Foundation have taken a “climate first” approach. Having seen the hugely positive impact the Taskforce for Climate related Financial Disclosures (‘TCFD’) has had on the UK FTSE Boardroom in the last year, as the mandatory requirements have begun to be adopted, I believe this is absolutely the right decision. The TCFD, in its role as a strategic risk framework, has acted as a catalyst to challenge Boards on the way they think about risks, stretched their planning horizons, and ultimately driven better strategic decisions. Taking the structure and thinking of the TCFD as the starting point for the ISSB standards is a very smart move – and will hopefully drive better strategic actions across global boardrooms from tomorrow.
For those companies that are on the front foot, having adopted TCFD, SASB, and CDSB in the past, the good news is that the ISSB is expected to pick the best from all these standards aligning around the ‘TCFD-esque’ Governance, Strategy, Risk Management and Metrics & Targets framework, alignment will be an easier task.
And for those behind the sustainability reporting curve, you now have the opportunity to leapfrog the market by taking a strategic approach to the new standards, building both responsibility and resilience into your core business model and your business outlook.
The creation of the ISSB is a clear ‘call to arms’ for corporations. Business should be asking themselves:
- Am I considering sustainability as a disclosure metric or as a core strategic risk and opportunity for my business?
- Am I considering sustainability as a non-financial risk, or as an integrated corporate reporting thematic?
- Am I giving sustainability risks and opportunities, in particular climate risks and opportunities, the attention they necessitate in this fast paced change environment?