ISSB standards are bringing sustainability into focus – and redefining accountancy
These are changing times. Last month, the International Sustainability Standards Board (ISSB) published its first two standards, both of which are designed to set a global reporting baseline for sustainability and climate-related disclosures. This will, in turn, provide investors and other stakeholders with a more complete picture of an enterprise’s overall value.
The standards are as follows:
- IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information, and
- IFRS S2 Climate-related Disclosures
Both will officially come into force on 1 January 2024.
Meeting 21st century expectations
Sustainability has been part of any responsible business’s internal controls reporting requirements for some years. The way a company manages its sustainability risks, such as its carbon footprint, are as important as its approach to, for example, credit risk and leveraging. However, the manner in which this is reported has, to date, been haphazard.
The new standards provide a mechanism for companies to communicate how they go about identifying and managing sustainability risks and opportunities in a way that can be compared and contrasted with their competitors. This sort of consistency is exactly what is needed to provide meaningful reports to help investors make informed decisions.
It also correlates with modern societal obligations. People expect businesses to behave responsibly with regard to the environment and sustainability. They also expect companies to demonstrate that they do so and to be held accountable if not. The ISSB standards provide a common language and set of reporting metrics that are a vital first step in providing the transparency that people reasonably expect.
Helping businesses to manage sustainability risks
We have mentioned that sustainability reporting is already an established internal controls requirement for some businesses, especially those that are large and well-established. The ISSB standards signal sustainability reporting’s transition from a good practice to a required disclosure.
It will be instrumental in helping those that are not so far along the path to establish their own mechanisms for managing sustainability. After all, every business currently prepares financial reports to a standardised format and is clear about what is expected. ISSB standards will help every business to communicate how it identifies and manages its sustainability-related risks over the short, medium and longer term in the same way and at the same time.
Redefining the role of accountants
This is not the first development in recent years to cause those in the accountancy profession to take a look in the mirror and say “who am I?” Linking ISSB to financial reporting certainly appears to signal a profound change, or at least expansion, of an accountant’s duties.
Or does it?
The days when an accountant looked at nothing but balance sheets, P&Ls and tax returns are long gone. Arguably, they never existed at all. Read through Dickens novels like Dombey & Son or Hard Times and you will encounter accountants advising business owners on growth strategies and diversification because these all have an impact on the overall value of the business.
Sustainability management is no different, except in terms of its perceived image. Put simply, a business that, for example, manages its carbon footprint, produces zero waste and invests in local green initiatives is a “good” business.
From 2024 onwards, part of the accountant’s role will include guiding businesses towards best practices here and helping those who are lagging behind to get their shop in order. That’s something that could certainly inspire more to join the profession. With the best will in the world, it sounds more inspiring than helping businesses to minimise their tax liabilities.
Ultimately, however, these are all just different components that feed into a company’s overall value.