Sustainability reports are still prepared according to many different standards and guidelines. DNK, GRI, SASB or TCFD are just a few examples. But what do these abbreviations actually stand for? And what about the perspectives for uniform reporting standards?
The International Financial Reporting Standards Foundation, (in short: IFRS), is a non-profit organization founded in 2001. Its primary goal is to create globally uniform standards for corporate financial reporting. The International Accounting Standards Board (IASB), a subordinate of the IFRS, is responsible for creating those standards. The IASB’s expert group sets internationally recognized standards for financial reporting and is required by many regulatory authorities and stock exchanges around the world as the prime reporting standard for (larger) listed companies.
At the end of 2021, during the United Nations COP26 in Glasgow, the IFRS announced the establishment of the International Sustainability Standards Board (ISSB) – the new sustainability affiliate of the IASB. The goal of the new organization, headquartered in Frankfurt am Main, Germany, is to create global standards for sustainability reporting. For this purpose, the parent company IFRS has already integrated two other large standard organizations that define sustainability reporting indicators: The Climate Disclosure Standards Board (CDSB), which offers standards for reporting environmental indicators, and the Value Reporting Foundation, which includes the Integrated Reporting Framework and the SASB standards. The purpose of this integration process: to establish an overarching, all-unifying ESG reporting standard and thus finally create more comparability between companies’ sustainability performances.
IFRS at the top of the list of unifying standards
The ISSB is already working at full speed on drafts for overarching standards. Among other things, the sustainability framework of the Task Force on Climate-Related Financial Disclosures (TCFD) will be integrated, and a wide-ranging collaboration has already been announced with the Global Reporting Initiative (GRI). In March 2022, the ISSB published the first draft standards and made them available for comments and observations until the end of July. The final drafts of the ISSB’s sustainability standards are expected by the end of 2022.
The challenge will be to integrate the Corporate Sustainability Reporting Directive (CSRD) planned by the EU into the new ISSB standards (or vice versa!) in a meaningful way – especially since the European Financial Reporting Advisory Group (EFRAG) is already working on its own comprehensive reporting standard for the CSRD in the form of the European Sustainability Reporting Standards (ESRS). Not to lose sight of these aspects, the ISSB emphasized again in its last meeting that globally compatible standards are the key to capital markets.
The ISSB standards as a great hope for more ESG transparency
Consumers and rating agencies will be especially pleased with the more uniform ESG reporting standards. Once the standards are published in a mandatory way, they will enable unprecedented transparency and comparability of the sustainability efforts of different companies. In addition to financial performance, environmental and social factors are taken into consideration to a much greater extent – and in such a way that it will be possible to simply lay the sustainability reports next to each other and compare them one-on-one.
International organizations also welcomed the move toward uniform reporting standards. After the drafts were published, they were commented on in a statement from the United Nations, for example. The UN welcomed the ISSB initiative, but at the same time insisted that a holistic approach to reporting would be needed to prevent the benefits of the new reporting standards from being nullified by missing or misleading regulations.
What do the ISSB standards mean for companies?
All companies that have already geared their sustainability reporting towards the SASB and GRI standards will probably have to adjust to only a few (content-related) changes. The SASB framework was instrumental in shaping the industry-specific portions of the ISSB standards. However, those who have so far used less internationally used standards, such as the Deutschen Nachhaltigkeitskodex (DNK), would do well to prepare now to a greater extent for the standard drafts presented by the ISSB. As soon as the ISSB standards are published , they will in all likelihood – alongside or hopefully together with the EU’s European ESRS metrics – become the definitive benchmarks for good sustainability reporting.
Do you want to create a sustainability report that complies with current and future standards? We’re glad to assist you. Don’t hesitate to get in touch to learn more about future ESG requirements for your company!