1.3 - Sustainability & Sustainability Standards Flashcards
Define sustainability
Meeting the needs of the present generation without compromising the ability of future generations to meet their own needs.
Why is sustainability reporting important?
Important to users who are increasingly interested in an entity’s sustainable operations. This may affect informed decisions.
Users are interested in social aspects as well as how sustainability impacts company value.
What role do accountants play in sustainability reporting?
Measure, analyse and report an entity’s impact on environment and society.
Need to assess how these impact the entity.
What are the issues surrounding reporting on sustainability information?
Lack of formal standards has led to inconsistency in:
1. Type of information disclosed
2. How it is disclosed
3. How it links to ‘traditional’ accounting & measures of corporate value
What bodies have issued guidance and reports on sustainability disclosures?
What is the status of these?
ISSB & CSRD
Some are best practice, some will become mandatory.
What is the ISSB?
When was it formed and who by?
International Sustainability Standards Board
Formed in 2021 by IFRS Foundation
What is the ISSB responsible for?
Developing a set of sustainability disclosure standards (IFRS Sustainability Disclosure Standards)
To complement existing IFRS Accounting Standards.
What is the ISSB intended to cover?
To cover a range of ESG sustainability topics on which investors want information.
However, a general requirements standard has also been drafted
What is the aim of the IFRS Sustainability Disclosure Standards?
Provide high-quality, transparent and comparable information relating to sustainability in financial statements and sustainability disclosures which are focused on the needs of investors and the financial markets.
When were the the first IFRS Sustainability Disclosure Standards issued?
Drafts were issued in 2022.
The first two standards were issued in 2023.
What are the two fundamental aspects to sustainability reporting?
- Companies reporting how their business positively or negatively affects environmental, societal, and governance issues - ‘impacts’
- Considering how these factors affect a company’s financial statements and their ability to maintain value - ‘dependencies’
In relation to sustainability reporting give examples of impacts.
- Worker rights
- Human rights
- Health and safety policy
- Waste
- Greenhouse gas emissions
- Water usage
- Land usage
- Biodiversity
In relation to sustainability reporting give examples of dependencies.
- Worker health
- Workplace diversity
- Climatic conditions
- Resource availability
- Regulation
- Consumer expectations
- Other stakeholder expectations
- Risks to organisational reputation
What kind of sustainability disclosure is most useful to investors?
Why?
Disclosure of information on dependencies
Allows assessment of how a company is managing its exposure to long-term ESG risks. In turn, assess the value of the company to inform investment decisions.
