RoadMap
Clarifying sustainability standards
A trio of sustainability standards and recommendations have been issued over the last 12 months. Here, we draw them together and chart the path forward
ISSB issues global sustainability disclosure standards
The International Sustainability Standards Board’s inaugural standards – IFRS S1 and IFRS S2 –attempt to create a common language for disclosing the effect of climate-related risks and opportunities on a company’s prospects. IFRS S1 provides a set of disclosure requirements designed to enable companies to communicate to investors about the sustainability-related risks and opportunities they face over the short, medium and long term. IFRS S2 sets out specific climate-related disclosures – particularly mitigation and adaptation – and is designed to be used with IFRS S1. Both were developed with the Task Force on Climate-related Financial Disclosures and include their recommendations (see point 3).
European Commission adopts European Sustainability Standards
The Corporate Sustainability Reporting Directive introduces a bloc-wide requirement for limited assurance on sustainability information. The standards also cover the full range of environmental, social, and governance issues, including climate change, biodiversity and human rights. In announcing the standard, the commission said it had developed the rules to “ensure a very high degree of interoperability between EU and global standards and to prevent unnecessary double reporting by companies”.
TNFD publishes risk management and disclosures recommendations
The Task Force on Nature-related Financial Disclosures (TNFD) recommendations are a voluntary system, and also forms the basis of IFRS S1 and IFRS S2. The recommendations set out six general requirements (approach to materiality; scope of disclosures; consideration of nature-related issues; locations; integration with other sustainability issues; and stakeholder agreement) that are applied across its four pillars. These are: governance; strategy; risk and impact assessment; and metrics and targets. It also sets out its Locate, Evaluate, Assess, Prepare (LEAP) approach, which is designed to help entities understand and manage their interactions with nature.
Companies to begin reporting under new regimes
Starting from 2024, the EU’s Corporate Sustainability Reporting Directive kicks in, and almost 50,000 companies are subject to mandatory sustainability reporting, including non-EU companies that have subsidiaries operating within the EU or are listed on EU regulated markets. The same applies to the ISSB standards, which have effective dates of 1 January 2024. For companies with year-ending 31 December 2024, the first reports are due in 2025.
