Understanding Global Reporting Standards
As questions around the credibility and impact of ESG reporting continue to arise, its role as either a transformative force or a superficial exercise is under debate. In an era where sustainability is no longer just a byword but a fundamental business imperative, the way companies report on environmental, social, and governance (ESG) factors is under intense scrutiny. As stakeholders demand greater transparency and accountability, the need for robust sustainability and environmental reporting standards has never been more critical.
In this article we’ll cover two prominent frameworks: The International Sustainability Standards Board (ISSB) and the Task Force on Nature-related Financial Disclosures (TNFD) are both influential organisations shaping the future of ESG reporting.
Background and Establishment of the ISSB
The International Sustainability Standards Board (ISSB) was officially established by the IFRS Foundation on November 3, 2021, during the COP26 climate summit in Glasgow1. This formation drove a strong market demand for a unified approach to sustainability disclosures. The ISSB aims to consolidate various sustainability reporting initiatives into a comprehensive global baseline that meets the information needs of investors and the financial markets.
Main Objectives and Purposes of the ISSB
The ISSB was created with four key objectives:
Develop Standards For A Global Baseline of Sustainability Disclosures: To create high-quality, comprehensive global sustainability disclosure standards. These standards provide consistent and comparable information across markets, aiding in better investment and economic decision-making.
Meeting Investors Information Needs: To ensure that investors receive relevant and decision-useful information about sustainability-related risks and opportunities that companies face in the short, medium, and long term.
Provide Comprehensive Sustainability Information to Global Capital Markets: To help companies provide detailed sustainability information that can be integrated with their financial reporting, thereby enhancing their disclosures' overall transparency and accountability.
Facilitate Interoperability with Jurisdictional Standards and Broader Stakeholder Groups: This will facilitate compatibility with international and regional sustainability disclosure requirements, allowing companies to efficiently meet global and jurisdiction-specific reporting needs.
Key Initiatives and Recent Developments
Since its establishment, the ISSB has made significant strides in developing and implementing its standards.
The ISSB issued its inaugural standards, IFRS S1 and IFRS S2, which set out requirements for general sustainability-related disclosures and specific climate-related disclosures, respectively. These standards incorporate the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and aim to provide a global baseline for sustainability reporting.
Key Initiatives:
Partnership Framework: The ISSB has launched a Partnership Framework, engaging with over 30 organisations globally to support the implementation of its standards. This initiative focuses on capacity building among preparers, investors, and other stakeholders, ensuring broad adoption and effective use of the standards (IFRS).
Jurisdictional Integration and Support: The ISSB is actively collaborating with various international bodies, such as the European Commission and the Global Reporting Initiative (GRI), to enhance the interoperability of sustainability disclosures. ISSB has also created a Jurisdictional Working Group to establish dialogue for compatibility between ISSB’s work and ongoing jurisdictional initiatives, which consists of 7 members throughout different regions. To aid jurisdictional adoption, ISSB has released the Inaugural Jurisdiction Guide for the adoption or other use of ISSB Standards. This collaboration effort seeks to reduce companies' reporting burden and ensure that sustainability information is globally comparable.
Capacity Building and Support: The ISSB has established a Transition Implementation Group and various capacity-building and stakeholder engagement initiatives to aid in globally adopting its standards. These efforts are designed to help companies implement the standards effectively and efficiently, particularly in emerging and developing economies.
Recent Developments:
Global Adoption Efforts: Many jurisdictions representing a significant portion of the global economy have announced steps to use or align with the ISSB’s standards. At the COP28 in Dubai, more than 390 organisations spanning 64 jurisdictions including the ASEAN Capital markets Forum (ACMF) have committed to ISSB adoption. This widespread adoption underscores the growing consensus on standardised sustainability disclosures.
Market Consultation: The ISSB continues to engage with market participants to refine and enhance its standards. This ongoing consultation process ensures that the standards remain relevant, practical, and responsive to the market's evolving needs.
Background and Establishment of the TNFD
The Taskforce on Nature-related Financial Disclosures (TNFD) was officially launched in June 2021 to address the critical need for businesses to assess and disclose their interactions with natural ecosystems.
Recognising that society, business, and finance depend on nature's assets and services, the TNFD aims to provide decision-makers with better quality information through corporate reporting on nature that improves enterprise and portfolio risk management.
The TNFD's primary goal is to support a shift in global financial flows away from nature-negative outcomes and toward nature-positive outcomes, aligned with the Kunming-Montreal Global Biodiversity Framework. To achieve this, the TNFD framework focuses on:
Identifying and Assessing Nature-related Risks and Opportunities: The TNFD emphasises the importance of understanding and evaluating an organisation's dependencies and impacts on nature. This approach enables businesses to anticipate and respond to environmental changes that may affect their operations and financial performance.
Integrating Nature-related Disclosures into Financial Reporting: By incorporating nature-related issues into financial disclosures, the TNFD framework ensures that businesses report on their interactions with natural ecosystems. This integration enhances transparency and accountability, facilitating informed decision-making for investors and other stakeholders.
Key Initiatives and Recent Developments
LEAP Approach
The TNFD developed the LEAP (Locate, Evaluate, Assess, and Prepare) approach to guide organisations through assessing and managing nature-related risks and opportunities. The assessment framework comprises of:
Locate their interfaces with nature across geographies, sectors, and value chains.
Evaluate their dependencies and impacts on nature.
Assess nature-related risks and opportunities.
Prepare to respond to nature-related risks and opportunities, including reporting material nature-related issues.
Four Pillar Structure
The TNFD’s disclosure recommendations are structured around four pillars, mirroring the approach of the Task Force on Climate-related Financial Disclosures (TCFD):
Governance: Processes, controls, and procedures used to monitor and manage nature-related issues.
Strategy: Approaches to managing nature-related issues.
Risk and Impact Management: Identification, assessment, prioritisation, and monitoring of nature-related issues.
Metrics and Targets: Performance indicators related to nature-related issues, including progress towards targets.
Recent Developments
Final Recommendations: In September 2023, the TNFD released its final recommendations, which provide a comprehensive framework for businesses to disclose nature-related risks and impacts. These recommendations are designed to be consistent and comparable globally, aligning with other international frameworks such as the Kunming-Montreal Global Biodiversity Framework and the ISSB.
Sector and Biome Guidance: The TNFD has developed additional guidance specific to various sectors and biomes, helping organisations understand how their activities interact with different ecosystems and what metrics to use for reporting.
International Collaboration: The TNFD works closely with other global initiatives and frameworks such as the GRI to ensure interoperability and alignment. This collaboration helps promotes adopting comprehensive sustainability reporting practices.
Nature & Numbers
As the corporate world grapples with the increasing imperative of sustainability, the ISSB and TNFD stand out as critical frameworks shaping the future of ESG reporting. The ISSB standardises global sustainability disclosures, ensuring investors receive consistent and comparable information. In contrast, the TNFD focuses on integrating nature-related risks and opportunities into sustainability reporting, highlighting the importance of our natural ecosystems in economic stability.
Both frameworks underscore the necessity of transparency, accountability, and comprehensive reporting in fostering sustainable business practices. By adopting these standards, organisations can better navigate the complexities of sustainability, mitigate risks, and seize opportunities associated with environmental stewardship. Companies considering these frameworks should evaluate their specific needs and contexts to make informed decisions that align with their long-term sustainability goals and stakeholder expectations. In doing so, they contribute to a more sustainable and equitable future and enhance their resilience and competitiveness in an evolving global market.
DISCLAIMER
Some financial products and services may not be classified as Shariah-compliant. Please research carefully before making any financial decisions.
REFERENCES
IFRS - ISSB issues inaugural global sustainability disclosure standards. (n.d.).
IFRS - COP28 Declaration of Support. (n.d.).
IFRS - Inaugural Jurisdictional Guide for the adoption or other use of ISSB Standards. (n.d.).
IFRS - Jurisdictional Working Group. (n.d.).
IFRS - Partnership Framework for capacity building. (n.d.).
IFRS - Transition Implementation Group on IFRS S1 and IFRS S2. (n.d.).
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