"Navigating Sustainability Reporting: The Path to Consistent and Comparable Data"

"Navigating Sustainability Reporting: The Path to Consistent and Comparable Data"

Introduction:

In recent years, there has been growing pressure from investors and financial institutions for more consistent and comparable data across all sectors and industries. The International Sustainability Standards Board (ISSB) has been established by the International Financial Reporting Standards (IFRS) Board of Trustees to address this need and develop a global baseline for sustainability-related financial disclosures. As Southeast Asia aligns its climate disclosure requirements with major global markets, such as the United Kingdom and the European Union, the ISSB standards are expected to become a regulatory requirement. In this article, we will explore the key elements of the proposed ISSB standards and their implications for businesses.

Alignment with Existing Frameworks:

The ISSB standards leverage the existing framework of the Task Force on Climate-related Financial Disclosures (TCFD), which consists of four pillars: governance, strategy, risk management, and metrics and targets. By aligning with the TCFD framework, the ISSB aims to provide stakeholders, particularly investors, with clear, consistent, and comparable information about a company's sustainability and climate-related risks and opportunities.

Disclosure of Governance Structures:

One of the key requirements of the ISSB standards is the disclosure of governance structures related to monitoring and managing climate-related risks and opportunities. This includes specifying the individuals or bodies responsible for this task within an organization, ensuring their skills and subjecting them to appropriate senior oversight. Moreover, the standards emphasize the incorporation of climate-related thinking into the organization's broader strategic decision-making process.

Addressing Climate-related Risks and Opportunities:

The ISSB standards require organizations to disclose their strategies for addressing significant climate-related risks and opportunities. Similar to the TCFD, companies are expected to analyze how these risks and opportunities can impact their business models, cash flows, access to capital, and financial performance in different scenarios. Furthermore, the standards emphasize the need for organizations to outline their plans for responding to these risks, including business transformation plans and actions to improve resilience.

Enhanced Risk Management:

The ISSB standards go beyond the TCFD requirements by explicitly outlining the process by which climate-related risks and opportunities are identified, assessed, and managed. Organizations are expected to disclose the methodology used for prioritizing climate-related opportunities and the inputs considered when evaluating climate-related risks. Additionally, the standards require organizations to disclose any changes in the application of this methodology between reporting periods.

Metrics and Targets:

To enable users to assess an organization's performance towards its climate-related targets, the ISSB standards introduce specific disclosure requirements for metrics and targets. Notably, the standards mandate separate disclosures of Scope 1 and 2 carbon emissions, with the addition of Scope 3 emissions from supply and value chains. Recognizing the challenges associated with Scope 3 emissions, the standards may incorporate additional guidance and phase-in provisions to support organizations in meeting this requirement. Furthermore, the standards emphasize the use of industry-based metrics to contextualize disclosures.

Conclusion:

As sustainability reporting becomes increasingly important in the business landscape, organizations must be prepared to navigate the evolving landscape of standards and requirements. By embracing the proposed ISSB standards, companies can enhance transparency, comparability, and accountability in their sustainability reporting efforts. To ensure a smooth transition, organizations should consider the following actionable advice:

• 1. Stay informed about the development of the ISSB standards and their alignment with global frameworks like the TCFD.

• 2. Review and enhance governance structures to ensure effective management of climate-related risks and opportunities.

• 3. Invest in robust data collection and analysis systems to measure and monitor climate-related metrics and targets.

By following these recommendations, businesses can not only meet regulatory requirements but also gain a competitive advantage by demonstrating their commitment to sustainable practices and climate resilience. Together, we can create a more sustainable future for Southeast Asia and the global community.