Draft standards provide strong basis for crucial corporate climate disclosures
Karachi, August 16, 2022: ACCA says that the draft standards from the International Sustainability Standards Board (ISSB) are urgently needed to provide a consistent global base line for companies reporting on sustainability-related financial information.
While welcoming the two exposure drafts (EDs) ACCA notes that it is imperative that reporting drives the necessary systematic change in sustainability reporting and that operational changes take place in companies and that investors use the information provided to allocate capital more efficiently and responsibly.
Commenting on the ISSB’s exposure draft (ED) IFRS S1, General Requirements for Disclosure of Sustainability-related Financial Information ACCA is calling for a clear definition of the meaning of sustainability-related financial information. The global accountancy body is also calling for standard setters to give greater guidance on how entities will determine materiality when reporting on sustainability issues.
While agreeing with the requirements, ACCA also warns that proposed disclosures about risks and opportunities emerging from companies’ supply chains, including Scope 3 emissions, will present new disclosure challenges for many companies as will working out how to provide forward looking information.
Sharon Machado, head of Sustainable Business, ACCA says: ‘The ED does not define what is ‘sustainability-related’. As a result, the breadth and scope of the risks and opportunities that need to be considered and disclosed is left to the judgement of the preparing companies, to the detriment of consistent application, comparability, as well as cost and effort in reporting.
‘We would urge the ISSB to provide a clearer indication, both in the standard and through illustrative examples, as to what sustainability might cover. ACCA suggests the ISSB could look to the six integrated reporting capitals to serve as useful framing for a broad and holistic understanding of ‘sustainability.’’
ACCA is also calling on the ISSB to resist making disclosure requirement too voluminous. For reporting to serve the needs of users and bring about more effective and sustainable allocation of capital, it is imperative that information is presented in a clear and concise way. Disclosure overload will make it more difficult for investors and other stakeholders to find the information that they need.
Commenting on IFRS S2 Climate-related Disclosures, ACCA questions whether the SASB-derived industry-specific disclosure requirements fully reflect relevant disclosure topics and metrics in an emerging economy context. ACCA argues that until field-testing is done to more fully assess the international applicability of the industry-specific requirements, they should not form a mandatory part of the standard, but rather take the place of application guidance.
ACCA also highlighted a global skills shortage with the demand for sustainability reporting talent far exceeding supply. This lack of human resource could further increase compliance costs. ACCA calls for the ISSB to work with regulators, professional bodies, IFAC and the World Bank to upskill existing talent and build capacity in the reporting professions worldwide.
ACCA’s response drew on the assistance of ACCA’s Global Forum for Corporate Reporting and Global Forum for Sustainability. It has also been informed by global member outreach events and roundtables held in the ASEAN region between May and July 2022. As part of its work to directly inform the ISSB’s standard-setting efforts, ACCA is undertaking a joint research project with the University of Glasgow on climate-related disclosures in the chemicals and constructions materials industries. Preliminary findings have been presented to ISSB staff, and the final report will be published in September.
Commenting on the implementation of the standards, ACCA is urging the ISSB to develop an implementation road map in conjunction with its jurisdictional working group to guide national regulators and ensure consistent implementation across the globe.
Sharon Machado concluded: ‘A phased approach to implementation that reflects the size of entities and the resources required to dedicate to implementation may be appropriate. Smaller non-listed entities will require the longest lead time before the requirements become mandatory for them.
‘We would expect that companies would want to have a dry run before being required to fully comply with the standards. The implementation roadmap should reflect this, with period of voluntary adoption before the standards are adopted on a mandatory basis.’
Read ACCA’s response to ED IFRS S1 and IFRS S2