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International Sustainability Standards Board and European Union release ESG reporting standards (2023)
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Reuters reported on July 28 that the International Sustainability Standards Board (ISSB) released its new environmental reporting standards, which were designed with the goal of simplifying global reporting and aligning regulatory agencies around the world under universal standards:
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The world of global business standards is a deliberate and slow-moving one. That makes the recent release of the first International Sustainability Standards Board (ISSB) standards after just 18 months lightning quick, in relative terms. The board’s inaugural standards are IFRS S1, which tells companies what information they need to disclose to investors about the sustainability-related risks and opportunities they face over the short, medium and long term; and IFRS S2, which sets out specific climate-related disclosures and is designed to be used with IFRS S1. … [T]he ISSB and its standards are designed to address this disclosure fatigue, continuing a process of consolidation in sustainability standards that started a few years ago. “I’m really excited about the new standards,” says Michiel van der Lof, global corporate reporting services leader at consultancy EY. “Investors have been asking for a globally consistent standard for many years.” … Because the ISSB is part of the International Financial Reporting Standards (IFRS) Foundation, which also administers the International Accounting Standards Board (IASB), the sustainability standards are compatible with the financial ones, says van der Lof. “That compatibility with IASB and the connectivity between the financial and sustainability information – that is the true additional element.” Ilmi Granoff, senior fellow at the Sabin Center for Climate Change Law and Adjunct Research Scholar at Columbia Law School, says: “The ISSB standards are not fundamentally about a world of voluntary disclosure. They are emerging at a time when we are shifting towards regulated reporting regimes, and it is really important to harmonise those, and the language that different regimes are using – that is the key to convergence.” The potential of a global baseline has already been partially fulfilled, with both the European Union and the Securities and Exchange Commission (SEC) working closely with ISSB. There was a big step forward last week, when the standards were endorsed by the International Organization of Securities Commissions (IOSCO). The IOSCO is now calling on the 130 capital markets regulators in the organization, which regulate more than 95% of the world’s securities markets, to consider how they can incorporate the standards into their regulatory frameworks to deliver consistency and comparability of sustainability-related disclosures worldwide. … An analysis by CDP of G7 countries and a group of 17 European countries (which would be among the best performers on TCFD disclosure) shows that no more than 19% of the companies from any country had achieved 100% TCFD-aligned disclosure through CDP. One key gap is the lack of disclosure on how climate-related information is fed into company strategies, while companies also perform poorly on risk management, “suggesting that they do not have sufficient processes in place to assess and manage climate risk," CDP says. In addition, fewer than half of companies are reporting on their supply chain emissions, or Scope 3, even though these amount to 11.4 times their direct emissions.[1] |
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The European Union (EU) released its own ESG reporting standards on July 31. The environmental components of the EU standards were developed in conjunction with the ISSB:
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On July 31, the European Commission adopted the European Sustainability Reporting Standards. The ESRS will standardize how companies within the European Union report climate change and other ESG related actions. They are set to go into effect on January 1, 2024. The standards stem from the European Green Deal, which required an assessment of sustainability performance by companies. The standards, drafted by the European Financial Reporting Advisory Group, are meant to meet reporting requirements of the EU’s Corporate Sustainability Reporting Directive and Sustainable Finance Disclosure Regulation. The draft standards were initially submitted to the commission in November 2022, but EFRAG has since made substantial changes to that draft based on feedback from stakeholders and the commission. The final standards adopted by the commission are less stringent and recategorized some areas from mandatory to voluntary. The ESRS, while featuring the term sustainability in the title, are inclusive of the broader environmental, social, and governance reporting requirements. … There are 12 ESRS, divided into four reporting categories: general, environmental, social, and governance. General covers topics that cross over to multiple categories, like format and timelines. Two of the ESRS are general. Environmental gets the most focus, with five standards. Those standards are ESRS E1 – Climate Change, ESRS E2 – Pollution, ESRS E3 – Water and marine resources, ESRS E4 – Biodiversity and ecosystems, and ESRS E5 – Resource use and circular economy. The commission announced that they have been working with the International Sustainability Standards Board in their development of the recently announced International Financial Reporting Standards Foundation Sustainability Disclosure Standards. … Now that the standards are available, it is incumbent on those individual jurisdictions to adopt all or part of the standards. The environmental ESRSs are designed to work alongside and incorporate the IFRS Sustainability Disclosure Standards.[1] |
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See also
- Environmental, social, and corporate governance (ESG)
- Economy and Society: Ballotpedia's ESG newsletter
External links
Footnotes
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