31 December 2021 year-end sustainability reporting update
Sustainability reporting is a hot topic at the moment and 2021 was a landmark year in the history of sustainability standards development. The demand for sustainability disclosures to be made by entities in a globally consistent manner has become a top priority for the investor community as well as various levels of government worldwide.
Historically, sustainability reporting standards have gone by many names such as non-financial reporting, ESG (environmental, social and governance) reporting, CSR (corporate and social responsibility) reporting, sustainability reporting, etc. and cover a variety of topics, including climate, emissions, pollution, social responsibility, governance and many others.
The various types of sustainability reporting have been addressed by numerous different standard setters; however, the standards have typically been non-mandatory and inconsistent in their requirements. This has resulted in ‘greenwashing’ where an entity may ‘cherry pick’ and disclose only information that casts its activities in a positive light, while ignoring others.
This fragmentation led to calls by many entities worldwide for the formation of a standard setter that can build on the work done by previous organisations and begin issuing a single set of globally consistent sustainability standards as a ‘global baseline’. Jurisdictions could then use that consistent baseline, and build additional requirements where considered necessary.
These calls culminated in the announcement of the formation of the International Sustainability Standards Board (ISSB) in November 2021 as a sibling board to the International Accounting Standards Board (IASB), both under the governance structure of the IFRS Foundation.
Please refer to our International Sustainability Reporting Bulletin for a ‘snapshot’ of sustainability reporting developments as at 31 December 2021, along with a summary of the major events that led to the formation of the ISSB, and an overview of what to expect in 2022.
In New Zealand, the Government has passed legislation that will result in New Zealand being the first country in the world to require the financial sector to report on climate risks.
The External Reporting Board (XRB) has been tasked by the Government with developing reporting standards as part of a climate-related disclosures framework, along with guidance on environmental, social and governance (ESG) matters.
Climate-related disclosures will be mandatory for large listed companies with a market capitalisation of more than $60 million; large licensed insurers, registered banks, credit unions, building societies and managers of investment schemes with more than $1 billion in assets; and some Crown financial institutions (via letters of expectation).
The XRB aims to issue its first climate standard in December 2022. The standard will be effective for periods starting immediately after its release. Which means these entities would be required to make disclosures alongside wider year end reporting in 2023 at the earliest.
The XRB are keeping a close eye on international developments in climate disclosures, including the of the formation of ISSB (as detailed above), and the development of a prototype climate-related financial disclosure standard. The XRB intends to ensure that the New Zealand climate-related disclosures framework are aware of and in-line with the international developments.
Although in New Zealand, mandatory climate-related disclosures are aimed at larger entities, many other organisations of all sizes have sustainability and ESG as a priority and are in the process of implementing ESG policies and procedures, and in some instances disclosures.
For assistance with your ESG journey please contact BDO’s ESG Advisory Team.
For more on the above, please contact your local BDO representative.
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