The start of 2021 has seen some major developments in sustainability and non-financial reporting, driven by increased demand for a consistent global framework. You may have noticed that a growing number of listed and unlisted companies throughout Australia and the world are now periodically producing and releasing sustainability reports additional to their financial statements. Further to this, there has been a push to strengthen and align current frameworks to create a global sustainability reporting system.
As this momentum increases, companies will need to be more cognizant of non-financial risks, including climate change, and how these may impact on their business model, operations and strategy in the short, medium and long term.
The Trustees of the IFRS Foundation recently announced the formation of a working group to accelerate the creation of global sustainability reporting standards focussing on enterprise value and to prepare for a potential international sustainability reporting standards board under the governance of the IFRS Foundation.
What to expect
From the first meeting of the working group, they have confirmed the strategic direction of the new board will be as follows:
Investor focus: the new board will focus on information that is material to the decisions of investors, lenders and other creditors
Sustainability scope: the board will initially focus on climate-related reporting, whilst also working towards meeting the information needs of investors on other ESG (environmental, social and governance) matters
Build on existing frameworks: the board will build upon established work already performed by the alliance, including considering the prototype proposed by the alliance for an approach to climate-related disclosures
Building blocks approach: standards issued by the new board would provide a globally consistent and comparable sustainability reporting baseline
What you should be doing now
The IFRS standards do not refer specifically to climate-related matters. However, companies must consider climate-related matters when applying the IFRS standards, when the effect of those matters is material to the financial statements. Information would be considered material if omitting, misstating or obscuring it could reasonably be expected to influence the decisions of the primary users of the financial statements. This also extends to other non-financial matters, other than climate-related matters, that would impact on the financial statements.
When
It is expected that a definitive proposal, including a road map with timeline, will be released by the end of September 2021.
It’s clear that stakeholders, including shareholders, creditors, customers and the general public, are expecting more from companies and organisations in relation to sustainability and non-financial reporting, and we expect that this trend will very soon become the “norm”. Whilst the initial focus is on climate-related reporting, we expect that this will expand to other ESG matters in the short term.
If you need assistance with sustainability or non-financial reporting, or would like more information on this topic, please don’t hesitate to reach out to your engagement partner.
