New Sustainability Disclosure Standards: what they mean for business
This week, the International Sustainability Standards Board (ISSB) unveiled its first two standards, aimed at meeting the information needs of investors and creating a global benchmark for sustainability-related financial language. Adoption of these standards is expected to roll out in January 2024, via a phased-in approach.
In this article, we explore four key takeaways from the new standards and their potential impact on companies, including small and medium-sized enterprises (SMEs).
1. Enhanced Transparency and Accountability
The ISSB Standards represent a global baseline; effectively a framework for companies to explain the effects that Environmental Social and Governance (ESG) matters have on their business, and what they are doing to manage those effects. In creating this, it is hoped that 'non-financial information' will finally step onto the same stage as financial data, revealing the impact of things like climate risk on enterprise value. This will help investors to evaluate, price, and manage some of these risks and opportunities across their portfolios, and ultimately reward those businesses that are acting to mitigate these risks.
2. Reporting Harmonisation
Currently, an 'alphabet soup' of frameworks exists for ESG reporting, making it hard for investors to make relative comparisons between organisations and their preparedness for the sustainability transition. The ISSB Standards were designed to help harmonise sustainability reporting practices globally, helping investors to make comparisons between companies, sectors, and jurisdictions. Such comparability will not only drive competition but also (it is hoped), foster a race to adopt sustainable practices, benefiting both the planet and businesses.
3. Supply Chain Ripple Effect
One of the significant consequences of the ISSB Standards is the increased scrutiny of supply chains. SMEs will no longer be able to evade sustainability obligations by operating beneath the radar. As larger listed entities adopt these standards (which include Scope 3 value chain emissions disclosures), they will reach out to their suppliers, requesting transparency and sustainable practices. SMEs that work with these organisations will be urged to measure and set targets for reducing their impacts, aligning with the sustainability strategies of their partners.
4. Cost and Resource Allocation Challenges
Implementing the ISSB Standards may pose challenges for businesses in terms of cost and resource allocation. Complying with the new reporting requirements and establishing robust measurement systems will require investment in technology, data management, and employee training. SMEs, in particular, may face a steeper learning curve due to limited resources. However, this could also present an opportunity for more organisations to start future-proofing their business model, improving resiliency through better understanding the implications of the sustainability transition on their operations.
To summarise, the ISSB Standards are designed to help investors to price and manage sustainability risks and opportunities across their portfolios. As such, it will have ripple effects across businesses both large and small, impacting their ability to secure funding. By consolidating existing frameworks and reporting initiatives, it is hoped that the new standards will streamline the non-financial reporting process for companies - but will still require investment in things like data management and employee training.
Are you looking to build a common awareness of sustainability and its implications for your business? At SeedCulture, we're dedicated to helping you to educate and empower your workforce on sustainable practices, enabling them to drive positive change from within. Explore our gamified sustainability training and action platform today.
