How regulation is driving a focus on sustainability reporting globally

Global regulations are increasingly driving a focus on sustainability reporting, requiring companies to disclose their environmental, social and governance practices, writes Miriam Donald

When I became an accountant nearly 20 years ago, the intersection of business and sustainability was very different to what it has become today.

I remember a university course touching on corporate social responsibility (CSR), but with more of an ethical and community lens than an environmental focus.

At that time, CSR was positioned as something that was “nice to do”. Today, the landscape has changed considerably.

Sustainability is becoming more and more intertwined with how businesses operate. This shift is being driven not just by voluntary sustainability reporting, but also increasingly by evolving regulatory frameworks.

This evolution comes down to demand from international investors who understand that environmental risks can have a significant impact on the financial sustainability of businesses.

This means that it is now necessary to upskill and find out what is required in your jurisdiction and report as needed.

The International Financial Reporting Standards (IFRS) Foundation has had a busy few years. Its International Sustainability Standards Board (ISSB) released its first two sustainability standards in June 2023.

The foundation has also been working hard to consolidate Sustainability Accounting Standards Board (SASB) standards and Integrated Reporting Framework and Climate Disclosure Standards Board into the organisation while also building interoperability with the Global Reporting Initiative and the European Sustainability Reporting Standards (ESRS).

This consolidation drive is part of the IFRS Foundation’s goal to create one set of global standards with the aim of facilitating easy comparability of sustainability disclosures globally.

Despite these efforts, reporting obligations still differ across the world. It is useful, then, to look to countries like New Zealand and Australia and draw inspiration from their sustainability reporting efforts.

New Zealand was one of the first countries to legislate mandatory climate-related disclosures for about 200 businesses from 1 January 2023. These disclosure standards were developed by New Zealand’s External Reporting Board.

The first 34 of these entities have now published their first climate statements, which can be viewed on New Zealand’s Companies Office register.

These disclosures are mainly qualitative but encourage company boards to think differently about their strategy, with a newfound focus on how climate change might affect their operations and value chains.

One of the main purposes of this reporting is to ensure that the effects of climate change are routinely considered in business, investment, lending and insurance underwriting decisions.

The hope is that, by bringing these effects to the forefront of board members’ minds, more climate-friendly decisions might be made in the future.

Across the Tasman, Australia is also mandating climate-related disclosures for a much broader group of entities, with legislation now before parliament at the time of writing.

The Australian Accounting Standards Board is developing these standards, which are expected to be closely aligned to the ISSB standards on climate-related disclosures. Reporting periods for the first entities will begin from 1 January 2025.

With new regulations come opportunities. For reporting entities, responsibility for this reporting is increasingly sitting with their finance functions.

They also need to be thinking strategically beyond compliance, however, to better respond to the risks and opportunities of climate-related matters. These disclosures will also be assured, and accounting practices will need to build their knowledge in this new and evolving area.

As the driving force behind these disclosures and jurisdictions, the IFRS is signalling that while climate is the first focus area for disclosures, it is not the end game. Finding out what is coming down the track for your business will be important.