Get ready for new accounting standards - the latest from the International Sustainability Standards Board
The International Sustainability Standards Board (ISSB) was established in September 2021 by the International Financial Reporting Standards Foundation (IFRS) to develop and publish a set of sustainability reporting standards that can be used globally. The aim of the ISSB is to promote transparency and consistency in sustainability reporting and help businesses and investors make informed decisions about environmental, social, and governance (ESG) issues.
In February this year, the board voted to release global guidelines this year, that would come into effect in January 2024. This is welcome news as the global community seeks an apples to apples reporting framework - the finance ministers of over 40 countries have come out and said they welcome the standards, including the U.S., U.K. and Germany.
The ISSB expects to issue an IFRS Sustainability Disclosure Standard around the end of Q2 2023 - Sumday will be updating advisors as these standards are released.
Basically the standards will provide a framework for companies to report on their ESG performance in a consistent and comparable way, making it easier for investors and other stakeholders to assess their sustainability risks and opportunities.
Companies will be required to report on their ESG performance in their annual reports and other financial statements, using the new sustainability accounting standards. The standards will be voluntary at first, but it is expected that they will become mandatory in the future as governments and regulators around the world increasingly demand greater transparency and accountability on ESG issues.
This means we’re starting to see overarching global reporting rules, including rules for greenhouse gas emissions. Importantly, the standards will require that companies report on emissions from their supply chain (or scope 3 emissions) which have been notoriously difficult to do. While it won’t be easy, it is necessary.
Scope 3 emissions make up around 80% of emissions for most organisations. This will bring an end to incomparable emissions reports such as those we see in Australia where a company may elect to exclude significant portions of their scope 3 emissions under the government's “Climate Active” framework and where the GHG Protocol (while voluntary) currently allows for optional scope 3 reporting. It is worth noting that Sumday already requires a business to include scope 3 emissions, on a cradle to gate basis before their emission factor can form part of the Sumday database.
The ISSB is working with regulators around the world to effectively update accounting standards to include these new requirements and to provide further guidance to those it will affect.
The development of these new standards is a positive step towards greater transparency and accountability. Importantly, its a very clear signal that accountants have a significant role to play in delivering climate reporting in line with global standards, for their clients.
Accountants will need to be familiar with the new sustainability accounting standards and help their clients to implement them effectively. Additionally, the new standards may create new opportunities for accountants to provide sustainability-related services to their clients, such as sustainability assurance and consulting services. The ISSB standards will play a significant role in shaping the future of accounting and reporting.
Sumday will continue to provide training to Sumday Certified Advisors to ensure they know how to align with the standards as further information is released. The Sumday accounting platform is designed to help companies and their accountants deliver carbon accounting records and reports that comply with these evolving standards.