If you are like most of our clients, you have been bombarded with confusing and often conflicting information about the field of Sustainability and Environmental, Social, and Governance (ESG) reporting and what it means for your business. This bulletin is indented to provide insight on a recent event that will have a significant impact on your business and ESG reporting, the COP26 UN Climate Change Conference.
The United Nations (UN) Climate Change Conference “COP26” (Oct 31st, 2021 – Nov 12th, 2021) was held in Glasgow Scotland. These annual summits work to address the issue of climate change. COP stands for Conference of the Parties, and the summit was attended by the countries that signed the United Nations Framework Convention on Climate Change (UNFCCC) – a treaty that came into force in 1994. These COP’s have produced action plans such as the Kyoto Protocols (Kyoto, 1997), and The Paris Climate Agreement (Paris, 2015).
This year in Glasgow provided a significant shift, and greater insight into in how companies will disclose and report ESG issues going forward. The conference worked to clarify some of the confusion around ESG reporting.
During the conference, the International Financial Reporting Standards (IFRS) foundation trustees announced three key developments to provide global financial markets with guidance on global climate and sustainability reporting requirements:
- The formation of a new International Sustainability Standards Board (ISSB). The intention is for the ISSB to deliver a comprehensive global baseline of sustainability-related disclosure standards that provide investors and other capital market participants with information about companies’ sustainability-related risks and opportunities to help them make informed decisions.
- Commitment by leading sustainability disclosure organizations to consolidate. This includes the Climate Disclosure Standards Board (CDSB), and the Value Reporting Foundation which leads the Global Reporting Initiative (GRI) integrated reporting framework, and the Sustainability Accounting Standards Board (SASB) standards. The organizations will complete their consolidation in June of 2022.
- The publication of a prototype climate and general disclosure requirement document. This will be accomplished through a working group pulling in organizations such as:
- International Accounting Standards Board (IASB)
- Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD)
- The World Economic Forum (Forum)
- International Organization of Securities Commissions (IOSCO)
So, what does this mean? Simply, these three initiatives will serve as the foundation for the development of a global reporting standard that organizations will be required to comply with. If your company has not committed to providing Sustainability & ESG disclosures, it is time you gave this serious consideration.
So why commit to sustainability and ESG Reporting?
We believe Sustainability and ESG disclosures will shift from voluntary reporting to mandated reporting requirements within the next two years.
It may seem obvious but take a step back. Corporate leaders are being continually challenged on the question of how the businesses they serve contribute to, and address the myriad of environmental, social, and governance issues that face us today. Leaders face increasing pressure from political activists, shareholders, social media, consumers, and their employees, to choose a side and make investment decisions based on the issues they hold dear.
Choosing to ignore the importance of ESG, is to ignore the inherent recognition that strong ESG practices directly impact your bottom line. Sustainability programs are becoming a critical component of business strategy. Your company’s ESG strategy will dictate your reputation, the way your consumers engage, the talent you attract, and your ability to access capital.