Sustainability Disclosure Standards

Sustainability Disclosure Across Jurisdictions

• The Sustainability Disclosure across jurisdictions chapter discusses the importance of shaping new and updated standards, promoting adoption, and interpreting compliance.

Materiality Considerations Unique to Sustainability-Related Financial Disclosure

• Materiality judgements are applied when discussing sustainability-related financial disclosure.
• Sustainability-related risks and opportunities are considered in materiality assessment.

Identifying Sustainability-Related Risks and Opportunities

• Transition risk is one of the key risks to consider.

Standards Built on a Common Definition

• Standards are built on a common definition.
• Impact materiality is emphasized in sustainability-related financial disclosure.

Inclusive of Stakeholders

• Sustainability-related financial disclosure aims to be inclusive of all stakeholders.
• This includes assessing the impact of a company's activities on stakeholders including shareholders, customers, suppliers, employees, communities, and the environment.

The Sustainability Information Value Chain and the Role of Data Providers

• The sustainability information value chain involves data providers, aggregators, ESG ratings and analytics providers, and data users.
• Data aggregators collect and analyze data from various sources, including both structured and unstructured data.
• ESG ratings and analytics providers evaluate companies based on environmental, social, and governance factors, providing insights to investors.

Data Products Shaped by Customer Needs

• The demand for sustainability data has driven the development of various data products.

Additional Influencers of Sustainability Data Quality

• Disclosure platforms and reporting software play a significant role by facilitating sustainability reporting processes.
• Securities exchanges, mission-based coalitions and alliances, and industry associations contribute to shaping sustainability data quality.

Different Audience Needs

• The sustainability information value chain caters to different audience needs, including investors, customers, regulators, and employees.

A Broad Range of Data Types

• Sustainability data encompasses various units and bases of measurement to capture diverse aspects.
• Different methodologies are used for preparing sustainability data, ensuring transparency and comparability.
• Forward-looking information, including targets and aspirations, is increasingly included in sustainability disclosures.

The Role of Standards and Frameworks: From Fragmentation to Cohesion in Sustainability Disclosure

• The chapter explores various sustainability disclosure frameworks and standards, including CDP, CDSB, GRI, IIRC, SASB, TCFD, and TNFD.
• While these frameworks provide guidance, they lack alignment, leading to confusion and complexity.
• Growing rates of adoption of different frameworks often lead to confusion regarding reporting requirements.

Comparing Sustainability Disclosure Frameworks and Standards Pre-ISSB Consolidation

• The table outlines the target audiences, nature of frameworks/standards, and industry focus of each sustainability disclosure framework.
• CDP: Focuses on environmental disclosures, targeting all stakeholders.
• CDSB: Focuses on providing information relevant to investors.
• GRI: Aims to provide comprehensive sustainability disclosures to stakeholders.
• IIRC: Emphasizes the integration of sustainability into corporate reporting.
• SASB: Focuses on industry-specific sustainability disclosures for investors.
• TCFD: Provides recommendations for disclosing climate-related financial information.
• TNFD: Provides a framework for reporting nature-related risks and opportunities.

Sustainability Disclosure Across Jurisdictions

• The IFRS Foundation is shaping new and updated standards to promote adoption and proper implementation of sustainability-related financial disclosures.
• They interpret compliance with sustainability disclosure requirements across jurisdictions.

Materiality Considerations Unique to Sustainability-Related Financial Disclosure

• Materiality judgments are applied in the context of sustainability-related financial disclosures to determine if information is significant enough to influence the decisions of users of financial statements.
• Identifying sustainability-related risks and opportunities involve considering:
  • Climate change: This includes physical risks like extreme weather events and transition risks related to policies and regulations aimed at reducing greenhouse gas emissions.
  • Resource scarcity: This involves the depletion of natural resources and the potential impact on businesses.
  • Social issues: This encompasses factors like human rights, labor practices, corruption, and supply chain risks.

Standards Built on a Common Definition

• Sustainability-related financial disclosure standards are built on a shared definition of materiality, which considers the information’s potential impact on the ability of a company to achieve its strategic objectives.

Impact-Focused Materiality

• The concept of impact materiality is applied to sustainability-related financial disclosures, meaning that companies should consider not only the financial impact of sustainability issues on their businesses but also their impact on society and the environment.

Inclusive of Stakeholders

• Stakeholder engagement is an integral part of sustainability-related financial disclosures, as companies are expected to consider the interests of a wide range of stakeholders, including investors, employees, customers, suppliers, communities, and the environment.

Stakeholder and Investor Focused

• Sustainability-related disclosures are increasingly focused on the needs of stakeholders, especially investors, who seek information about a company's environmental, social, and governance (ESG) performance.
• Frameworks like GRI and the TCFD are designed to facilitate the disclosure of ESG-related information in a way that is relevant to investors.

The Sustainability Information Value Chain

• The Sustainability information value chain encompasses a range of stakeholders, starting with data providers who collect and analyze sustainability-related information.
• This information is then used by ESG ratings and analytics providers to assess the ESG performance of companies.
• Data products are shaped to meet the needs of customers who use them to make informed investment and business decisions.

Data Providers

• Data providers fall into several categories:
  • Data aggregators: They collect data from various sources and provide it to data users in structured and unstructured formats.
  • ESG ratings and analytics providers: They analyze and interpret sustainability data to assess the ESG performance of companies.
  • Additional producers: This group includes:
    • Disclosure platforms and reporting software providers
    • Securities exchanges (facilitating ESG disclosures)
    • Mission-based coalitions and alliances
    • Industry associations

Sustainability Disclosure Frameworks and Standards

• Numerous frameworks and standards guide sustainability disclosures:
  • Global Reporting Initiative (GRI)
  • CDP
  • Climate Disclosure Standards Board (CDSB)
  • International Integrated Reporting Council (IIRC)
  • Sustainability Accounting Standards Board (SASB)
  • Task Force on Climate-related Financial Disclosures (TCFD)
  • Task Force on Nature-related Financial Disclosures (TNFD)

Framework vs. Standards

• The GRI, IIRC, SASB, TCFD, and TNFD frameworks provide guidance on sustainability disclosures.
• CDP and CDSB are considered de facto standards, meaning they are widely accepted as best practices.
• Frameworks and standards can be categorized as either industry-agnostic or industry-specific.

Increasing Adoption Rates

• These frameworks and standards are increasingly adopted by companies, although confusion exists due to the proliferation of different approaches.
• This presents a challenge for investors who need consistent and comparable sustainability information from various companies.

The Sustainability Information Value Chain

• The sustainability information value chain is composed of various stakeholders that contribute to the production, aggregation, and dissemination of information about companies’ sustainability performance.
• These stakeholders play different roles in the value chain:
  • Data providers: collect and analyze sustainability-related information, including reporting platforms.
  • Data aggregators: gather and organize information from various data providers.
  • ESG ratings and analytics providers: analyze and interpret sustainability data to calculate ESG scores and ratings.
  • Users of sustainability information: make decisions based on ESG information, from investors to business leaders.

Key Influencers of Sustainability Data Quality

• Disclosure platforms and reporting software providers: These companies develop platforms and software that companies use to collect, manage, and report sustainability data.
• Securities exchanges: They set requirements for companies listed on their exchanges related to sustainability disclosures.
• Mission-based coalitions and alliances: They bring together stakeholders from various sectors to develop best practices and standards for sustainability reporting.
• Industry associations: They represent specific industries and can work to develop sector-specific standards for sustainability reporting.

A Closer Look: Double Materiality

• Double materiality refers to the idea that companies should consider both the impact their operations have on the environment and society (outward materiality) and the impact of environmental and social factors on their business (inward materiality).

A Closer Look: Why Sustainability-Related Risks and Opportunities Are Not Technically Material

• Sustainability-related risks and opportunities are not technically material because they don't directly impact the entity's financial statements.
• However, these risks and opportunities could have a significant impact on the entity's future profitability and financial performance.
• They can impact entities through potential changes in laws, regulations, and consumer demand.
• Companies must consider sustainability-related risks and opportunities, even if they don’t technically affect the financial statements, because they can impact their overall business operations.

The Dynamic Nature of Materiality

• Materiality is dynamic, meaning that it can change over time as stakeholder priorities evolve and new information emerges.
• This includes the possibility of new regulations and the increased emphasis on specific sustainability considerations.
• Companies should regularly review their materiality assessments to ensure they are reflecting up-to-date information and stakeholder expectations.

Additional Users of Sustainability Information

• Non-governmental organizations (NGOs) are users
• Sell-side analysts are users

Different Audience Needs

• Sustainability information meets different needs of different users

Data Types

• Various data types are used in the sustainability information ecosystem
• Different units and bases of measurement are common
• Different methodologies can be used to prepare data
• Forward-looking information is used

The Global Reporting Initiative (GRI)

• The GRI is a global standard-setting body for sustainability reporting

The CDP

• Formerly known as the Carbon Disclosure Project
• The CDP is a global non-profit that drives environmental disclosure

The Climate Disclosure Standards Board (CDSB)

• Works to integrate climate-related information into mainstream financial reporting

The International Integrated Reporting Council (IIRC)

• Works to develop a framework for integrated reporting

The Sustainability Accounting Standards Board (SASB)

• Develops industry-specific sustainability accounting standards

The Task Force on Climate-related Financial Disclosures (TCFD)

• Established by the Financial Stability Board
• Focuses on climate-related financial disclosures

The Task Force on Nature-related Financial Disclosures (TNFD)

• Focuses on nature-related financial disclosures

Industry-Agnostic vs Industry-Specific

• Industry-agnostic standards are generic standards that apply to multiple industries

Intergovernmental Regulatory Representatives for ISSB

• The G7 group of nations supports the formation of the ISSB
• The G20 group of nations supports the formation of the ISSB
• The International Organization of Securities Commissions (IOSCO) supports the formation of the ISSB
• The Financial Stability Board (FSB) supports the formation of the ISSB
• The African Finance Ministers support the formation of the ISSB

Securities Regulators

• Many of the world's securities regulators support the formation of the ISSB
• These include regulators from Australia, Brazil, Canada, China, European Union, France, Germany, Hong Kong, India, Japan, South Africa, Korea, Switzerland, United Kingdom, and the United States

Voluntary to Mandatory Climate Disclosure

• Canada, the European Union, and the United States are examples of different approaches to mandatory climate disclosure

Voluntary to Mandatory Climate Disclosure in Canada

• Canada has a voluntary approach to climate disclosure

Voluntary to Mandatory Climate Disclosure in the European Union

• The European Union has a mandatory approach to climate disclosure

Voluntary to Mandatory Climate Disclosure in the United States

• The United States has a voluntary approach to climate disclosure

Interpretive Guidance

• Interpretive guidance in sustainability reporting provides examples of appropriate disclosures

Principles-Based Disclosure Rules

• Principles-based rules provide principles that must be followed in disclosure
• The Australian Securities and Investments Commission (ASIC) is an example of a regulator with principles-based disclosure rules

'Comply or Explain'

• 'Comply or Explain' rules require entities either to comply with specific requirements or to explain why they have not

Mandatory Line Items

• Mandatory line items require specific information to be disclosed

Mandatory Line Items Examples

• EU Taxonomy for Sustainable Economic Activities- Requires disclosures on a company's activities
• Japan’s Mandatory Greenhouse Gas Accounting and Reporting System- Requires disclosures on greenhouse gas emissions
• Japan’s Ministry of Economy, Trade and Industry (METI) Practical Guidelines for Corporate Governance Systems (CGS)- Requires disclosures on corporate governance
• King IV Report on Corporate Governance for South Africa, 2016- Includes sustainability reporting principles for South African entities

This quiz explores the essential concepts of sustainability disclosure across different jurisdictions. It addresses materiality considerations specific to sustainability-related financial reporting, the identification of associated risks, and the importance of inclusive stakeholder assessments. Test your knowledge on how these standards are shaped and applied!