Global sustainability disclosure standards – everything, everywhere, all at once
Regulatory focus on environmental, social and governance (ESG) reporting has accelerated rapidly, with many jurisdictions awaiting the release of the first set of global sustainability and climate-related disclosure standards from the International Sustainability Standards Board (ISSB) later this year. The important role that sustainability disclosure guidelines and frameworks play in advancing decarbonization efforts globally was reinforced at this year’s KangaNews Sustainable Debt Summit in Sydney.
Sarah Thompson, Global Head, Sustainable Finance at RBC Capital Markets, moderated a panel titled “Mandatory climate risk reporting is coming: what can issuers and investors do to prepare now?” The panelists represented a variety of perspectives from across the international sustainability disclosure ecosystem, including an issuer, investor, assurance provider, and standards developer.
Kicking off with an overview of the current state of climate-related disclosures in the regions represented by panel participants, including New Zealand, Australia and Canada, it was clear that efforts to establish domestic guidelines have gained momentum in parallel with global initiatives. The scope of efforts and rapid pace of change was also remarked upon; reflecting on the sheer volume of activity within the space, one panelist noted that climate-related reporting is “everything, everywhere, all at once.”
Unpacking the current state of climate-related reporting
Among the regions represented on the panel, New Zealand is leading the charge on mandatory climate-related reporting with the establishment of a climate-related disclosure framework in December 2022. The path from announcing its intention to implement mandatory reporting on climate risks to developing reporting standards was described as a ‘100-meter sprint’, underscoring the speed at which some regulators are moving to establish the infrastructure needed for climate-related reporting.
This achievement was not without challenges such as building the necessary skills and capacity within the review board, a challenge shared by many across the capital markets. However, by taking a collaborative, open and transparent approach, New Zealand was able to establish standards that were both globally aligned and domestically relevant. At six pages, the concise standards are principles-based to enable greater flexibility as reporting becomes more sophisticated. By establishing “a floor, not a ceiling”, the standards will continue to be developed and refined over the coming years as markets mature.
Australia and Canada have also made notable progress in recent months with regards to the establishment of mandatory climate-related disclosures. In December 2022, the Australian government launched a consultation process seeking views on the design and implementation of a mandatory climate-related reporting regime. In March 2023, Canada’s federal prudential regulator issued new guidelines on climate risk management, including mandatory climate-related disclosures for financial institutions.
Issuers and investors call for harmonization
Even though climate-related disclosures are not yet mandatory in all jurisdictions, investors and issuers are increasingly focused on ensuring preparedness ahead of the potential introduction of new reporting requirements. The panel discussed the benefits of aligning with existing voluntary disclosure standards and frameworks as a way to get started.
One panelist shared their experience committing to report in alignment with the Task Force on Climate-Related Financial Disclosure (TCFD) framework in 2019. They adopted a phased approach, beginning with raising internal and external awareness of climate-related risks before developing skills and building capacity within the business.
One key takeaway was the importance of knowledge sharing, with the Climate Action 100+ Net Zero Benchmark identified as a helpful tool to understand corporate progress on climate transition, particularly with regards to governance and greenhouse gas (GHG) emissions reporting.
Harmonization of reporting across jurisdictions was key for others on the panel. One panelist shared that a top concern for investors is the amount of work required to interpret a variety of different climate-related disclosures from portfolio companies. Thompson agreed, adding:
“We may still see some expansion in this space before we start to see consolidation, but we're definitely moving in the direction of consolidation and streamlining of sustainability disclosure.”
How disclosure can drive behavior change
The panelists shared how embarking on climate-related reporting can have a positive effect on reporting entities, including highlighting the importance of sustainability, informing planning and building capabilities.
“Going through the effort of producing disclosures can raise awareness within organizations and create connectivity between teams that otherwise wouldn't interact. Frameworks like the TCFD encourage companies to focus on the “how” of managing climate-related risks and opportunities,”- Thompson
The panel agreed that mandatory disclosure will result in better quality data that is more consistent and comparable. It will also help to establish the transparency needed to direct capital and build credibility for transitioning companies.
The need for capacity building
The rapid increase in the volume of disclosures companies and investors are now being required to undertake risks resulting in resourcing constraints across the ecosystem. The panel discussed the urgent need for capacity building, citing concerns about “competency washing” resulting from a lack of expertise. One panelist described the efforts in the audit industry to ensure the right skill sets exist to meet the growing demand for external verification of sustainability disclosures.
All panelists agreed that we have moved beyond a time when it was reasonable to expect that a multinational corporation would have a one- or two-person sustainability team responsible for managing all jurisdictions and aspects of performance and reporting.
Instead, organizations are increasingly recognizing sustainability as a specific area of expertise that is being acknowledged through the appointment of Chief Sustainability Officers. In this regard, building capacity also requires recognizing existing talent and elevating those individuals to more senior roles.
According to the most recent United Nations Intergovernmental Panel on Climate Change (IPCC) Report, published days before the 2023 KangaNews Sustainable Debt Summit, there is still time to act on climate change and limit global warming to 1.5°C. However, as U.N. Secretary-General António Guterres stated prior to the launch of the report, a quantum leap in climate efforts is needed: “Our world needs climate action on all fronts - everything, everywhere, all at once.”
[1] https://www.asfi.org.au/taxonomy
