An accountant’s guide to meeting regulatory requirements

Author: Lucia Real-Martin

In today’s business world, where sustainability and corporate social responsibility are crucial, environmental, social and governance (ESG) reporting has undoubtedly become a key element. This increase in ESG reporting is further linked to global sustainable development goals, especially the United Nations Sustainable Development Goals (UNSDG). Stakeholders across enterprises continue to demand more comprehensive CSR and sustainability disclosures, leading to the need to develop better ESG reporting standards and frameworks so that organizations can deliver ESG performance in a more transparent and consistent way.

In this article, we will look at the evolution of these standards, with particular emphasis on ISSB 1 and 2, and the growing importance of ESG reporting in the corporate world.

ESG reporting standards: evolution

Over the past few decades, the ESG reporting landscape has evolved significantly. Initially, sustainability reporting was largely voluntary and varied greatly by region and industry – with no specific framework or procedures in place. However, as the impacts of climate change and social inequality have become more pronounced over the years, the need for standardized and comparable ESG reporting has also increased.

This need for more standardized ESG reporting has paved the way for a significant milestone: the establishment of the International Sustainability Standards Board (ISSB) by International Financial Reporting Standards (IFRS). Essentially, ISSB 1 and 2 are designed to provide a sort of global benchmark for sustainability-related disclosures. This was done to ensure consistency and comparability across regions and industries, but most importantly to ensure transparency.

ISSB Standard 1

In short, ISSB Standard 1 focuses primarily on general financial information requirements in the field of sustainability. It requires companies to provide comprehensive disclosures about sustainability risks and opportunities, in addition to their management strategies. The idea behind ISSB 1 is to seamlessly integrate sustainability considerations into the core of financial reporting processes, thereby enabling stakeholders to take a more holistic view of a company’s long-term value creation.

ISSB 2 standard

ISSB 2 primarily includes a detailed discussion of climate-related disclosures. This particular standard requires detailed reporting on all climate-related opportunities, risks and challenges. It includes governance, strategy, risk management, metrics and specific goals. By adhering to ISSB 2, companies can better articulate their climate resilience and transformation plans.

The importance of ESG standards in relation to UNSDG goals

The United Nations Sustainable Development Goals (UNSDG) are a group of 17 global goals aimed at tackling key issues such as poverty, inequality, climate change and environmental degradation. For their part, companies that adhere to the UNSDG goals integrate these goals into their business strategies, encourage sustainable practices and demonstrate that they are committed to global development and social responsibility. Companies that align their activities and reporting with the UNSDG goals, showing how they contribute to sustainable development around the world, increase their standing and the trust of stakeholders.

The UNSDGs provide a roadmap for a better and more sustainable future, and ESG reporting, based on the robust ISSB 1 and 2 standards, is key to monitoring and reporting progress towards these goals.

Increasing accountability and transparency

The fact is that comprehensive adoption of ESG reporting standards increases accountability and transparency. Investors, regulators and other stakeholders are increasingly paying attention to ESG performance, using standardized reports that provide the data they need to make decisions. This openness acts as a catalyst to support trustworthy relationships with stakeholders.

Applying sustainable business practices

Additionally, the ESG Reporting Standards encourage companies to adopt more sustainable business practices. How? Well, these standards require detailed disclosure of environmental and social impacts, which in turn forces companies to consider or mitigate any negative impacts on the planet or society where they are caused. This approach helps the environment and communities at large. Moreover, it also positions companies as sustainability pioneers.

Conclusion

At ACCA (The Association of Chartered Certified Accountants), we constantly promote ESG reporting and sustainable development. We believe that incorporating ESG issues into corporate strategy and reporting is of the utmost importance. Accountants play a key role in this process, providing the knowledge needed to deal with complex reporting requirements and ensuring the accuracy and reliability of sustainability data.

As ESG reporting becomes increasingly important, accountants need to stay up to date with evolving standards such as ISSB 1 and 2 in this area. These standards not only improve the quality and comparability of sustainability disclosures, but are also very closely linked to the UN Sustainable Development Goals, thereby stimulating global sustainability efforts.

Our ACCA members and professional accountants are very well placed to play a significant role in achieving the important imperative for organizations and society to put the planet and people before profits.

about the author

(Lucia Real-Martin is Executive Director of Relationships at ACCA)