ICAEW plays a leading role in sustainability reporting, working closely with governments, regulators, standard-setters and other agencies, in the UK and internationally. The ICAEW Corporate Reporting Faculty report, Shaping sustainability standard setting, analyses sustainability standard setting in the context of lessons from their accounting counterparts, looks at the challenges facing standard-setters and outlines recommendations and observations.

“I think now is the right time for ICAEW to look at this because of the proliferation of standard setting in this space,” says Seema Jamil-O’Neill, Technical Director of the UK Endorsement Board. It’s important to remember, she adds, that standards for reporting on sustainability should make the information provided by companies more easily understood, comparable and provide a higher level of transparency. 

Strengthening the roots

“A lot has come about in a tremendously short time,” says Mark Vaessen, President of Accountancy Europe and KPMG Partner in the Netherlands. “The first few standards that were issued by EFRAG [European Financial Reporting Advisory Group] and the ISSB [International Sustainability Standards Board] came at a speed that was unparallelled for those who are used to accounting standard setting.” 

Michael Stewart, Senior Expert on Financial Reporting at Huawei and former Technical Director at the IASB, notes: “Sustainability is a new area of reporting for many companies and a significant step that many are having to take, particularly in relation to ESRS [European Sustainability Reporting Standards].” Like ICAEW and other stakeholders, Stewart sees the importance of clarity from standard-setters on the purpose, intended audience and objectives of reporting. 

The ISSB was formed with the long-term vision of creating a high-quality, comprehensive global baseline of sustainability disclosures, and stakeholders want a coherent and detailed roadmap explaining the desired destination and how the ISSB intends to reach it. 

The International Accounting Standards Board (IASB)’s Conceptual Framework for Financial Reporting could offer a template to guide future sustainability standard-setting. It contains two fundamental principles: relevance and faithful representation. Says Stewart: “These could be the exact same fundamental principles for sustainability reporting standard setting.” 

Doing it the right way

The report’s call for a principles-based approach is widely supported. “At an international level, standards have to be developed in a principles-based way, so that they can be applied to a diverse range of companies, with different business models, across different jurisdictions with different legal constraints,” says Jamil-O’Neill. 

Another factor in the successful development of widely applicable global standards is high-quality due process. “Working at the IASB I saw how critical it is that due process is done in a structured, transparent and inclusive way, to give all stakeholders an opportunity to express their views and thoughts on standards being developed,” says Stewart. Expert and independent due process that can resist political pressure is especially important for standard-setters such as the ISSB without a statutory footing, and should continue after standards are issued. “It is sometimes through implementation of standards that we learn how to better craft them,” adds Stewart. 

Making it work

Standard-setters such as the European Commission, as advised by EFRAG, and the ISSB are focussing on what can be done individually and collectively to make it easier for their various standards to co-exist in a world where theirs are not the only established or emerging voluntary and mandatory standards for sustainability reporting and disclosures. 

There is interoperability guidance from EFRAG and the IFRS Foundation on the regional ESRS and global ISSB standards, mapping their alignment and illustrating how a company can apply both sets of standards. “There is an opportunity to create together one global principles-based standard,” says Vaessen, then if the ISSB, Europe or another jurisdiction wants to add to or supplement it with rules and regulations or guidance they can – as they do with international standards for financial reporting and audit. 

The report emphasises that implementation should also be a priority for the ISSB. National jurisdictions, including the UK, have committed to developing mandatory sustainability reporting standards based on IFRS S1 and IFRS S2. “It’s important that these are implemented in a way that the resulting information prepared by companies is globally comparable,” says Jamil-O’Neill. 

For Stewart, it’s important for future standards to build on what is learnt during implementation. “People are giving a lot of thought to the development of these standards, with the expectation that standard-setters will listen and respond to feedback.” 

People are also thinking about the need for consistent post-implementation assurance and enforcement. “Investors want sustainability reporting to be as robust as financial reporting, so we must ensure that the standards are ready for assurance,” says Vaessen. International Standard on Sustainability Assurance 5000, the sustainability assurance standard recently approved by the International Auditing and Assurance Standards Board, is good news; so are signs that multiple jurisdictions will be allowing its use. 

“We are just starting out,” says Jamil-O’Neill. “Over time I think the sustainability standard setting trajectory is towards an international baseline that jurisdictions can add to. But it’s not going to be a straight line.”

• A longer version of this is available on the Shaping sustainability standard setting hub.