The days when sustainability was merely nice for an organisation to have and photogenic environmental and social programs were adequate evidence of commitment have long gone.
Today stakeholders expect the organisations they buy from, trade with, own shares in and work for will act, measure and report on their sustainability practices. And these expectations will soon be codified, with mandatory reporting requirements for sustainability likely on the way. As we race toward net-zero, momentum on environmental, social and governance (ESG) accountability will accelerate.
It may be tempting for organisations to treat these sustainability reporting obligations as a compliance burden. But effective organisations are seeing how they can use this shift as a catalyst to become more sustainable.
Earlier this year, the International Sustainability Standards Board (ISSB) published exposure drafts for disclosure of sustainability-related and climate information.[1] Industry leaders in Australia[2] and abroad have welcomed the publication of the exposure drafts because they will bring consistency and comparability to climate reporting. The draft standards signal where the market is going – toward valuing sustainability metrics in financial reporting.
The impetus for action is also coming from the European Union as it finalises a proposal for the Corporate Sustainability Reporting Directive (CSRD), which will replace and significantly expand the requirements for non-financial reporting. Under the CSRD proposal, companies will need to disclose their ESG strategy, policies, targets, risks and indicators relating to areas including climate change, biodiversity, workforce, supply chain, community, end users of their products or services, and business conduct.[3]
The standards have implications for organisations outside the EU, including in Australia. They reflect a broadening of the conception of sustainability to include linkages between ESG outcomes, a social licence to operate, and a just transition.
Wherever the final standards land, greater transparency is inevitable. Robust sustainability reporting will require more planning and execution rigour than is currently in place for many organisations.
With a window of time until new rules commence, the time to act is now. We have identified five actions every organisation can take to get ready:
The pace of change on reporting requirements means that eventually organisations may be as accountable for their sustainability performance as they are for their financial performance.
Documenting sustainability performance encompasses more than just reporting on emissions or environmental transition; it also includes disclosures on social outcomes, community engagement and stronger governance.
The sustainability standards are likely to be finalised soon and will herald a new era in disclosure and action. Organisations need to act now or risk being left behind.
Get in touch to discuss how we can help you prepare for greater sustainability disclosure.
Connect with Wadzi Katsidzira on LinkedIn.
Prepared with input from Jacob Kerspien and Tom Morgan.
Published on 26 October 2022.
[1] International Sustainability Standards Board (2022). “Exposure Draft and comment letters: General Sustainability-related Disclosures”
[2] Chartered Accountants (2022). “Major consensus reached on Australian climate risk reporting”
[3] European Commission (2021). “Sustainable finance package: Proposal for a Corporate Sustainability Reporting Directive (CSRD)”