The global ecosystem for mandatory financial reporting has evolved over decades, and this will also be the case for the mandatory reporting and disclosure of sustainability-related information. “You can’t let perfect be the enemy of good in this area,” says Tom Seidenstein, Chair of the International Auditing and Assurance Standards Board (IAASB) and co-CEO of the recently created International Foundation for Ethics and Audit (IFEA), which houses the IAASB and the International Ethics Standards Board for Accountants (IESBA). 

“The standard-setting model that exists for accounting and auditing is relevant for sustainability standard setting,” says Seidenstein, echoing ICAEW’s recent report, Shaping sustainability standard setting, to which he contributed. Due process and governance are key to the development of independent standards with appropriate public accountability, he says, “not for the process itself, but for the end goal, the output, the trust and credibility”.

Finding clarity and consensus

In the world of accounting, there is clarity and consensus on what and who international standards for accounting, financial reporting, audit and their outputs are for. Things are less straightforward in the world of sustainability standard setting, however. “As the ICAEW report states, it’s important to be clear on the purpose of standards and who you are writing them for,” says Seidenstein. 

Building on the existing financial reporting ecosystem, European Standards for Sustainability Reporting (ESRS) and International Financial Reporting Standards for disclosure of sustainability-related financial information (IFRS S1) and climate-related disclosures (IFRS S2) are, for example, carefully aligned on ‘financial materiality’. But ESRS feature ‘double materiality’, which combines this narrowly defined ‘financial materiality’ with ‘impact materiality’, which has a broader scope.

Sustainability assurance matters

Assurance of information plays a valued role in enhancing stakeholder confidence in its credibility. “You can’t have a trusted system of reporting without assurance. You need independent, expert, third-party assurance to help address issues of trust and credibility,” says Seidenstein. This is why the IAASB developed its recently approved International Standard on Sustainability Assurance, ISSA 5000, after engaging with a broad range of stakeholders. 

Enforcement and evolution

Enforcement will play a key role and here, too, differences between sustainability standard-setters will matter. ESRS are already part of European Union law and various non-EU countries have committed to adopting IFRS S1 and S2 and/or using them as a basis for national standards. 

Collaboration already involves assurance and ethics standard-setters. For example, the recently published IESBA ethics and independence standard is interoperable with ISSA 5000. “We’ve spent a lot of time with it,” says Seidenstein. “If you like a global baseline on the reporting side, you like a global baseline for assurance, you should like a global baseline for ethics.” But there is uncertainty around whether jurisdictions will adopt this, and how effectively those setting sustainability-related standards can coordinate what they do.

Seidenstein says: “It would be helpful to have some sort of forum – not a formal governance body, but a place that allows standard-setters and regulators to integrate timelines and coordinate strategy approaches, get feedback quickly and learn from implementation.” Whatever happens, Seidenstein concludes, ICAEW and the wider profession have an important part to play in ensuring the success of that ecosystem.

• A longer version of this piece is available at Shaping sustainability standard setting, along with a collection of articles and the report itself.