The global economy is undergoing a significant transition, a shift that must accelerate if we are to achieve a net-zero future, enabling nature to thrive in a more equal world. Large asset managers are taking a longer-term view of the economy, factoring considerations around climate, nature, and inequality into their analysis and assessment of company resilience. Regulators, in turn, want to ensure that boards and proxy advisors have the appropriate policies and regulatory frameworks to account for these factors.
Also, as APAC (Asia Pacific) businesses navigate the transition to a net-zero economy, there is an increasingly urgent need for consistent, comparable, and reliable sustainability-related disclosures.
Traditional business and economic metrics used by companies and the financial sector need to evolve to provide a more accurate picture of an organization’s ability to navigate this transition and thrive in the new economy. The International Sustainability Standards Board’s (ISSB) IFRS S1 and S2 standards provide a unified framework that addresses this need. The standards offer a robust structure for companies to demonstrate their commitment to sustainability and build greater stakeholder confidence.
There is now real momentum in APAC, with many countries including Singapore, China, and Japan announcing their intent to incorporate the ISSB standards into local regulatory frameworks, reflecting the region’s proactive stance towards sustainability.
This article features insights from a recent panel discussion on the ISSB standards with a specific focus on the implications for companies in the APAC region. Linden Edgell, Partner at ERM, moderated. The panel consisted of Alan Docherty (CFO, Commonwealth Bank of Australia), Simon Messenger (Senior Advisor, IFRS), Catherine Osborn (Principal Consultant, ERM) and Matty Lunn (Partner, ERM CVS). Our discussion revealed the critical aspects of why the ISSB matters, its implications for businesses, and the essential steps companies in APAC must take to prepare for these new disclosure requirements.
Overview of the ISSB: Why Does It Matter? What Will Be the Main Implications for Business?
Why Does the ISSB Matter?
The ISSB matters because it addresses the increasing demand for consistent, comparable, and reliable sustainability-related disclosures that are essential for investors, regulators, and other stakeholders. The ISSB aims to streamline and standardize the suite of different guidelines, standards, and initiatives developed over recent years into a cohesive system. This will simplify and enhance the quality of sustainability reporting globally, particularly in the APAC region.
Review the Institute’s related briefing “ISSB's IFRS S1/S2: Laying the foundation for global mandatory disclosures” and other publications in their Disclosure Series for more information.
Main Implications for Business:
- Improved Transparency and Comparability:
Businesses in APAC will benefit from a more consistent framework for sustainability disclosures, which will improve the comparability of their sustainability performance with peers globally. This enhanced transparency is crucial for investors who need to make informed decisions based on reliable and comparable data.
- Enhanced Stakeholder Confidence:
With the adoption of the ISSB standards, businesses in APAC can demonstrate their commitment to sustainability and build greater confidence among stakeholders, including shareholders, regulators, and customers. This can lead to improved investor sentiment and potentially better access to capital.
- Regulatory Alignment:
The ISSB standards are being rapidly adopted, either in their entirety or with minor amendments, by numerous jurisdictions within APAC, accounting for significant portions of the region's economy and market capitalization. This widespread adoption indicates a strong regulatory push towards consistent sustainability reporting, meaning businesses will need to comply with these standards to meet local and international regulatory requirements.
- Holistic Business Strategy:
The ISSB standards encourage businesses to integrate sustainability into their overall strategy, governance, and risk management processes. This comprehensive approach ensures that sustainability considerations are embedded throughout the organization, leading to more resilient and future-proof business operations.
- Operational Efficiency:
By adopting a standardized reporting framework, businesses in APAC can reduce the complexity and cost associated with multiple reporting requirements. This will streamline data collection and reporting processes, improving efficiency and reducing time consumption.
Preparing for the ISSB or your local equivalent regime: 10 Essential Steps for APAC Businesses
1. Understand the Standards:
Begin by thoroughly understanding the ISSB standards (or your local equivalent standards) and how they align with or differ from existing frameworks your business may already be using, such as the recommendations of the TCFD (Task Force on Climate-Related Financial Disclosure), GRI (Global Reporting Initiative), or SASB. Use available guidance and supporting documents, including resources on the IFRS Sustainability Knowledge Hub, to gain a comprehensive understanding of the requirements.
2. Conduct a Gap Analysis:
Assess your current sustainability reporting practices against the ISSB standards to identify gaps and areas for improvement. This will help you prioritize actions needed to comply with the new requirements.
3. Build a Cross-Functional Team:
Form a team that includes members from various departments such as finance, sustainability, legal, risk management, and operations. This team will be responsible for driving the integration of the ISSB standards into the business.
4. Enhance Data Collection and Reporting Processes:
Invest in robust data collection and reporting systems that can handle the increased complexity and volume of sustainability data. Ensure that your processes can produce accurate, reliable, and timely information. It is important to note that most jurisdictions are also requiring information to be independently assured and accordingly the data you report needs to have appropriate supporting evidence
5. Engage with External Stakeholders:
Communicate with your stakeholders, including investors, regulators, customers, and employees, about your plans to adopt the ISSB standards. Transparency in your approach will build trust and demonstrate your commitment to sustainability.
6. Develop and Implement a Transition Plan:
Create a detailed plan for transitioning to the ISSB standards, including timelines, milestones, and responsibilities. This plan should outline the steps needed to close any identified gaps and ensure compliance by the required deadlines.
7. Train and Educate Employees:
Provide training and education to employees at all levels of the organization to ensure they understand the importance of the ISSB standards and their role in the reporting process. This will help embed a culture of sustainability throughout the business.
8. Seek External Expertise:
Consider engaging external experts or consultants who have experience with the ISSB standards to guide your transition. They can provide valuable insights and support to ensure a smooth and effective implementation.
9. Monitor and Review Progress:
Regularly review your progress against the transition plan and adjust, as necessary. This ongoing monitoring will help ensure that you stay on track and can address any challenges that arise promptly.
10. Focus on Continuous Improvement:
Sustainability reporting is an evolving field. Stay informed about updates to the ISSB standards or your local standards along with other relevant frameworks, and continuously seek ways to improve your reporting practices and sustainability performance.
The momentum behind the ISSB standards is undeniable, with many jurisdictions in APAC already moving towards adoption. For businesses, this presents both a challenge and an opportunity. The challenge lies in the complexity and scale of the changes required. However, the opportunity is significant: by aligning with the ISSB standards, companies can enhance their resilience, improve their access to capital, and position themselves as leaders in sustainability.
This is not merely a compliance exercise but a holistic transformation that involves the entire organization. Capacity building and interoperability with other standards are crucial to efficiently meet these new requirements. Proactivity and early transition can yield significant benefits.
The insights and practical advice shared provide a valuable roadmap for APAC companies embarking on this journey. By understanding the standards, conducting a gap analysis, building cross-functional teams, enhancing data collection processes, engaging stakeholders, and developing a robust transition plan, businesses can successfully navigate this new landscape.
In conclusion, the adoption of the ISSB standards is a pivotal step towards a more sustainable and resilient future. Preparation requires commitment, collaboration, and a proactive approach. By taking these steps, businesses in the APAC region can not only meet regulatory requirements but also drive meaningful change and create long-term value for their stakeholders.
Contact
Matty Lunn - Partner, ERM CVS
