Sustainability reporting
Background
Company boards, executives, and management are investing more and more time and resources on issues of sustainability - such as carbon (greenhouse gas emissions), energy efficient technology, water use, employee matters and diversity, to name just a few. An important part of the global push towards sustainability practices involves a need to account for, and report on, sustainability - sometimes referred to as environmental, social, and governance (ESG) or corporate responsibility (CR) reporting.
On this page, we provide an overview of developments in sustainability reporting requirements and practices, tracking its gradual adoption on both a voluntary and mandatory basis.
IFRS Foundation Trustees' sustainability reporting initiative and the International Sustainability Standards Board (ISSB)
In the context of their periodic strategy review, the IFRS Foundation Trustees published a consultation paper in September 2020 to determine:
- whether there is a need for global sustainability standards;
- whether the IFRS Foundation should play a role in developing such standards; and
- what the scope of that role could be.
Feedback to the consultation confirmed an urgent need for global sustainability reporting standards and support for the Foundation to play a role in their development.
On 3 November 2021, the IFRS Foundation ("the Foundation") announced the creation of the International Sustainability Standards Board (ISSB), recognising the urgent need for global sustainability reporting standards and the widespread support for the Foundation to play a role in their development.
In 2022, the following organisations were consolidated into the IFRS Foundation to support the work of the ISSB:
- Climate Disclosure Standards Board (CDSB)
- The Value Reporting Foundation (which includes the Sustainability Accounting Standards Board (SASB) and the International Integrated Reporting Council (IIRC)).
In June 2023, the ISSB published its first two IFRS Sustainability Disclosure Standards:
- IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information which sets out overall requirements for sustainability-related financial disclosures.
- IFRS S2 Climate-related Disclosures which sets out the requirements for identifying, measuring and disclosing information about climate-related risks and opportunities.
Each jurisdiction will need to decide whether, when and how to make the IFRS Sustainability Disclosure Standards mandatory.
The UK government is committed to adopting the first two standards, and the expectation is that the Secretary of State for Business and Trade, will decide on endorsement of the IFRS Sustainability Disclosure Standards to create - UK Sustainability Disclosure Standards (or UK SDS) - in 2024. In the first half of 2024, the Financial Conduct Authority (FCA) is also expected to consult on its policy approach to the ISSB standards.
Please see our resource page for the International Sustainability Standards Board (ISSB) and our Need to Know publication for further information. We also have a dedicated page for the Trustees' initiative.
Task Force on Climate-Related Financial Disclosures (TCFD)
The purpose of the Financial Stability Board’s (FSB's) TCFD was to develop recommendations for voluntary climate-related financial disclosures that are consistent, comparable, reliable, clear, and efficient, and provide decision-useful information to lenders, insurers, and investors. The work and recommendations of the Task Force helps companies understand what financial markets want from disclosure in order to measure and respond to climate change risks, and encourage firms to align their disclosures with investors’ needs.
Following the publication of the ISSB’s first two IFRS Sustainability Reporting Standards, the FSB has stated that the ISSB Standards should serve as a global framework for sustainability disclosures. With the International Sustainability Standards Board’s (ISSB) inaugural standards having been released (IFRS S1 General Requirements for Disclosure of Sustainability-Related Financial Information and IFRS S2 Climate-related Disclosures), the TCFD’s work is now complete. The Financial Stability Board (FSB) has therefore requested that the ISSB assume responsibility for monitoring progress on the state of climate-related financial disclosures by companies as of 2024.
This announcement does not change mandatory requirements in respect of TCFD disclosures. The Financial Conduct Authority (FCA) listing rule requiring listed companies to make disclosures that are consistent with the TCFD recommendations continues in force until and if the FCA changes the rule. The FCA has stated its intention to update its climate-related disclosure rules to reference the ISSB standards once they are available for use in the UK.
Further information on the TCFD is available on the TCFD website here.
EU Corporate Sustainability reporting Directive (CSRD) and EU Taxonomy Regulation
The Corporate Sustainability Reporting Directive (CSRD) was published in the Official Journal of the European Union (EU Official Journal) in December 2022.
The CSRD amends the EU Accounting Directive to require companies to provide information necessary to understand both the company’s impacts on sustainability matters and also how sustainability matters affect the company’s prospects, performance and position. The objective of the CSRD is to improve sustainability reporting to better exploit the potential of the European single market and to contribute to the transition to a fully sustainable and inclusive economic and financial system in line with the European Green Deal and the UN Sustainable Development Goals.
The CSRD brings in more extensive mandatory sustainability reporting for a wide range of companies and requires assurance on this information. Entities in scope are required to disclose sustainability information in a dedicated section within the management report and to prepare this information in line with European Sustainability Reporting Standards (or ESRS).
CSRD brings entities into scope of the reporting requirements over different years. As the CSRD has extraterritorial reach, it will impact certain UK entities from 2024 onwards.
For more information on the CSRD and ESRSs, read our CSRD and ESRS Need to Know publications.
Entities in scope of CSRD will also come into scope of the EU Taxonomy Regulation. The EU Taxonomy sets out a system for classifying economic activities contributing to the EU’s environmental objectives and requires an entity in scope to include information in its non-financial statement (referred to as 'sustainability reporting' in the CSRD) on how and to what extent the undertaking’s activities are associated with environmentally sustainable economic activities.
For more information on the EU Taxonomy regulation, read our iGAAP in Focus publication.
California Climate Legislation
In October 2023, the state of California signed into law two state senate bills and one assembly bill that together require certain public and private US entities that perform certain business activities in California to provide disclosures about their greenhouse gas (GHG) emissions, climate-related financial risks, voluntary carbon offsets (VCOs) and certain climate-related emission claims.
There is no specific exception for groups with a non-US parent, and therefore foreign entities with US-based subsidiaries that perform certain business activities in California would fall within the scope of the requirements.
For more information on the California Bills, read our Need to know publication.
US SEC Climate-related disclosure rule
On 6th March 2024, the US Securities and Exchange Commission (SEC) voted to adopt a rule that requires SEC registrants to provide climate-related disclosures. The new rule requires disclosure of:
- material climate-related risks;
- activities to mitigate or adapt to such risks;
- information about the registrant's board of directors' oversight of climate-related risks and management’s role in managing material climate-related risks; and
- information on any climate-related targets or goals that are material to the registrant's business, results of operations, or financial condition.
Large, accelerated filers (LAR) and accelerated filers (AR) are also required to disclose material Scope 1 and 2 greenhouse gas (GHG) emissions. Assurance requirements related to these disclosures will also be phased in. The final rule will become effective 60 days after publication in the Federal Register, and compliance will be phased in from 2025 to 2033. For more information, please see our Need to know publication.
Other organisations involved in sustainability reporting
Global Reporting Initiative (GRI)
The Global Reporting Initiative (GRI) promotes the use of sustainability reporting as a way for organisations to become more sustainable and contribute to a sustainable global economy. It is an international not-for-profit organisation, with a network-based structure.
GRI’s mission is to make sustainability reporting standard practice. To enable all companies and organizations to report their economic, environmental, social and governance performance, GRI produces free Sustainability Reporting Guidelines.
We have a dedicated page for the GRI.
Transition Plan Taskforce (TPT)
The TPT was launched by the UK Government in 2022 with a two-year mandate, to develop, a ‘gold standard’ for private sector climate transition plans, applicable to the UK but globally transferrable. The TPT’s final disclosure framework was published in October 2023 and is designed to complement, and build on, IFRS S2 Climate-related Disclosures.
The UK government has stated that it will consult on introducing climate transition plan requirements for the UKs most economically significant companies. The government will draw on the work of the TPT in doing so. In addition to the government consultation, the FCA also plans to consult on introducing guidance aligned with the TPT Framework, at the same time as consulting on its policy approach to the ISSB standards.
Further information can be found on the TPT website and in our Need to Know publication.
Taskforce on nature-related Financial Disclosures (TNFD)
The TNFD is a global, market-led, science-based and government supported initiative to help respond to the imperative, to factor nature into financial and business decisions.
The final TNFD framework was published in September 2023. Its recommended disclosures are closely aligned to the disclosure framework developed by the TCFD.
The TNFD is a voluntary framework. However, the UK government has stated its intention to consider how to incorporate TNFD into UK policy and legislation.
The ISSB also intends to use the outputs from the TNFD to inform its future standard setting.
Further information can be found on the TNFD website and in our Need to Know publication.
The United Nations Sustainable Development Goals
The Sustainable Development Goals (SDGs) are a collection of 17 goals set out by the United Nations within the 2030 Agenda for Sustainable Development; they call for urgent collective action towards global challenges, such as hunger, unemployment and climate change. The Governments of the 191 UN Member States have committed to achieving the SDGs and businesses can help bridge the gap towards achieving the SDGs by enshrining sustainable development in their purpose and core activities. Businesses are increasingly finding that there is an inextricable link between a commitment to sustainable development and enduring commercial success.
To find out more information, visit the Sustainable Development Goals website.
Adoption of IFRS Sustainability Disclosure Standards by jurisdiction
The IFRS Global Office of Deloitte has published an overview in tabular format about jurisdictions that have adopted or are in the process of adopting the ISSB standards. The document provides detail for each jurisdiction contained on the status of implementation, consultation deadlines (where applicable), the chosen adoption approach, the standards being adopted, the earliest mandatory effective date of any requirements, entities in scope and information on assurance requirements (where applicable). The document is continuously updated to reflect the latest developments.