Consolidation, Standardisation, and Evolution of Sustainability and ESG Reporting

The year 2024 promises to maintain the momentum seen in 2023 regarding the evolution of sustainability and ESG reporting and disclosure regulations. In June 2023, the International Sustainability Standards Board (ISSB), under the IFRS Foundation, issued the voluntary IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures, both effective for annual reporting periods beginning on or after January 1, 2024. Additionally, key economic regions have made sustainability or climate reporting mandatory, illustrated by the EU’s Corporate Sustainability Reporting Directive (CSRD), the European Sustainability Reporting Standards (ESRS), and California’s Climate Corporate Data Accountability Act and Climate-Related Financial Risk Act. These developments mark a new era characterised by the consolidation, standardisation, and maturation of sustainability reporting, shifting from voluntary to mandatory disclosures in various jurisdictions.

These developments’ strategic responses and impact on corporate managers, Boards of Directors, investors, and regulators are still emerging. For many, the trend towards consolidation and standardisation is welcomed as it represents an evolution into a “consistent sustainability reporting and disclosure language,” moving away from the “alphabet soup” of various voluntary and independent standards.

One of the key messages from Emmanuel Faber, Chairperson of the ISSB, speaking at an event co-hosted by the IoDSA and the Integrated Reporting Committee of South Africa in March 2024, was the need for a “proper language” in sustainability reporting. He emphasised that this evolution leads to “better information for better decisions,” highlighting the necessity for Boards to enhance their expertise, experience, and structures to engage with sustainability issues. Integrated thinking at the Board level, involving the competence of all members, is crucial for effective sustainability integration.

In South Africa, there is a growing appreciation for these developments in sustainability and ESG reporting and disclosures, which attract the attention of key corporate governance actors. The presence of prominent figures like Dr. M. King, the doyen of corporate governance and Dr. L. Koner, the Chair of the Financial Reporting Standards Council, at the IODSA event signalled strong support for adopting consistent language on sustainability.

Reflecting on these developments, it is clear that corporate boards must lead the integration of sustainability into strategy, risk management, performance management, and governance structures. Sustainability issues are too strategic and impactful on long-term corporate sustainability to be left solely to technical experts and operational managers. The evolution of sustainability reporting is an exciting space to watch, and it is encouraging to witness its progress.