3. Sustainability and Sustainability Standards Flashcards
Define Sustainability.
Sustainability refers to the practice of meeting the needs of the present generation without compromising the ability of future generations to meet their own needs.
Individuals and companies need to make choices and take actions that balance environmental, social, and governance issues to ensure long-term well-being for people and the planet.
Why is reporting on sustainability important?
What role do accountants play?
Sustainability reporting is important to users of financial statements who are increasingly interested in information relating to the sustainability of an entity’s operations when informing their decisions. The users are interested in both the social aspects of sustainability such as the impact an entity has on its local environment, and how sustainability impacts company value.
Accountants play a kay role in measuring, analysing and reporting on entities’ impact on the environment and society, and analysing how these issues impact the entity.
What issues exist relating to reporting/disclosure on sustainability information?
Some organisations have developed guidance around the disclosure of sustainability information; however, a lack of formal standards and the range of guidance has led to inconsistency in what type of information is disclosed, how it is disclosed and how it links to ‘traditional’ accounting and measures of corporate value.
What bodies have issued guidance and reports on sustainability disclosures?
What is the status of these?
There are a number of bodies, for example, the ISSB and the Corporate Sustainability Reporting Directive (CSRD), who have issued guidance and reports on sustainability disclosures.
Some are best practice, some will become mandatory.
What is the ISSB?
The International Sustainability Standards Board (ISSB) was formed by the IFRS Foundation in 2021 with responsibility for developing a set of sustainability disclosure standards (IFRS Sustainability Disclosure Standards) which will complement the existing IFRS Accounting Standards.
The ISSB will comprise members from a range of professional backgrounds and geographical areas who have experience and expertise relevant to sustainability.
What is the aim of the IFRS Sustainability Disclosure Standards?
The aim of the IFRS Sustainability Disclosure Standards is to 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.
What is the ISSB intended to cover?
The intention of the ISSB is to cover a range of ESG sustainability topics on which investors want information. It has begun with the climate-related disclosures due to the urgency regarding climate-related matters.
However, a general requirements standard has also been drafted to enable companies to disclose a complete set of sustainability-related financial disclosures for all significant sustainability-related risks and opportunities.
When were the the first IFRS Sustainability Disclosure Standards issues?
Draft IFRS Sustainability Disclosure Standards were issued for public consultation in 2022, with the first two standards 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.
Examples of impacts include worker rights, human rights, health and safety policy, waste, greenhouse gas emissions, water usage, land usage and biodiversity.
An organisations impacts can also be financially material due to reputational impacts such as reduced consumer demand or removal of license to operate.
In relation to sustainability reporting give examples of dependencies.
Examples of dependencies which may affect an organisation are worker health, workplace diversity, climatic conditions, resource availability, regulation, consumer expectations, other stakeholder expectations and risks to organisational reputation.
What kind of sustainability disclosure is most useful to investors?
Disclosure of information on dependencies is generally more useful for investors, who want to assess how well a company is managing its exposure to long-term ESG risks, and hence assess the value of the company to inform investment decisions. This directly relates to financial materiality.
