Explore the latest reporting updates including the IFRS Foundation’s new ISSB guide, PwC’s survey on board perspectives on ESG, Climate Impact Partners’ study on climate commitment trends and the Financial Reporting Council’s annual review of corporate reporting.
The IFRS Foundation has released a guide to help companies voluntarily apply the International Sustainability Standards Board’s (ISSB) sustainability reporting standards. The ISSB, launched in 2021, developed these standards to inform investors about companies’ sustainability risks and opportunities. The inaugural general sustainability (IFRS S1) and climate (IFRS S2) reporting standards were released in June 2023. Over 20 jurisdictions, representing nearly 55% of global GDP and over half of global greenhouse gas emissions, are adopting or considering these standards.
The new guide, “Voluntarily applying ISSB Standards – A guide for preparers,” aims to assist companies in meeting investor demand for sustainability reporting, especially in jurisdictions without regulatory requirements. Major investors like BlackRock and Vanguard are encouraging the application of ISSB Standards. ISSB Chair, Emmanuel Faber, emphasised that this guide helps companies transition from current reporting practices to ISSB Standards, providing a cost-effective route for delivering decision-useful information to investors.
PwC’s Annual Corporate Directors Survey highlights a declining focus on ESG in U.S. corporate boardrooms. Only 47% of directors report ESG as a regular agenda item, down from 55% in 2022. The survey, covering over 520 directors from various industries, reveals ambiguity surrounding ESG, with 66% agreeing it means different things to different people. Notably, only 7% equate ESG with sustainability. Larger companies show better ESG understanding and recognise its impact on performance more than smaller ones.
Directors face challenges in overseeing ESG disclosures and climate commitments’ impact on capital allocation. Despite the ESG focus decline, data security and talent management remain top boardroom priorities. PwC stresses the need for directors to understand ESG beyond terminology, focusing on identifying issues driving sustainable value creation and guiding management in resource allocation for long-term success.
Climate Impact Partners’ study of Fortune Global 500 companies shows a significant increase in climate commitments, despite growing anti-ESG sentiment and greenwashing concerns. Net zero targets have risen to 45% of companies, up from 39% in 2023 and just 8% in 2020. However, companies are becoming less vocal about their goals due to increased scrutiny. North American companies show the most progress, with 79% having significant climate targets, despite U.S. anti-ESG movements.
European companies lead at 95%, while Asian firms lag at 46%. The use of carbon credits in climate strategies has increased, with 42% of companies planning to use them. Companies using carbon credits are twice as likely to have near-term science-based targets. The study highlights the need for ambitious targets and the use of tools like carbon credits to accelerate progress in tackling the climate crisis.
In its report the FRC looked at a range of reporting areas, mostly around financial disclosures but also sustainability and narrative reporting.
The main findings were that; the quality of reporting had improve in the FTSE 350 but there is evidence of the gap widening between the FTSE 350 and other companies, climate-related reporting is becoming more well-established but the scope is widening with new regulations, and good quality reporting does not necessarily require a greater volume of disclosure.
The top issues that the FRC acted on by asking substantive questions of companies were on impairment of assets, cash flow statements, and financial instruments. 5% of companies with cases opened had questions raised on the strategic report and 4% on TCFD and climate-related narrative reporting, both making the top 10 issues raised.
For the 2024/25 cycle, the FRC expects that companies will improve their pre-issuance checks to ensure common technical compliance issues are reviewed robustly, risks and uncertainties are clear and consistent so they align clearly with the financial statements, and that the corporate narrative in the strategic report includes a fair, balanced and comprehensive review of the company’s development, position, performance and future prospects.
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