How business leaders can prepare for new climate reporting standards

If 2022 was the year for setting net-zero targets, 2023 is about ensuring delivery and preparation for disclosure.

On 26 June, the International Sustainability Standards Board (ISSB) – the sustainability disclosure affiliate of the International Accounting Standards Board (IASB) financial reporting body – released its first sustainability and climate disclosure standards. It is intended this move will drive the international standardisation of sustainability and climate disclosures similar to that achieved in financial reporting.

Several countries, including Australia have already sent signals that they will make the climate aspects of the disclosure standards mandatory for large, listed companies and certain financial institutions from the start of FY25, which is just months away.

Corporate net-zero pledges have increased significantly in recent years, reflecting a shift in sentiment to recognize the undeniable importance of a just transition for people and planet, which also presents a US$43 trillion global economic opportunity over the next five decades.

These pledges have largely been made with good intentions and signify a new era of cooperation between business and government in emissions reduction policy. With the stakes of the transition so high, unprecedented steps such as these disclosure standards are being – and must continue to be – taken to ensure net-zero commitments will be met. Without this, it will be even more challenging to address the climate and nature crisis.

It is noteworthy that the ISSB has met this need for speed on action by rolling out the standards within 19 months of its 2021 launch at COP26 in Glasgow; in contrast to the decades it took to standardize global financial accounting standards globally.

Commitments, however, require follow through, and the time available to reach the goals is limited.

This whole-of-economy change is coming quickly and to prepare for success in this new economy, leaders should prepare by building credible and transparent disclosure regimes, which comply with the new standards. A company’s board of directors will play a critical role in overseeing the development and implementation of their institution’s disclosure frameworks. While it may seem like yet another piece of red tape, this new disclosure regime offers cause for optimism. It will provide an opportunity for those companies leading in this space to show progress using consistent and comparable measures. To best address the challenges compliance presents, company directors should focus efforts in four priority areas: strategy and risk; governance and processes; capability and capacity; technology and data.

These areas complement each other and provide a framework for directors to oversee management in building reporting maturity, addressing gaps and realizing opportunities as the standards and mandatory reporting are introduced. With this in place, it will be critical to develop credible transition plans, which clearly articulate actions planned throughout assets, operations and the business model to deliver on strategy.

By preparing now, leaders have the chance to use this more quantitative reporting to feed into future strategic direction. This reporting can provide the runway needed to build organizational resilience to the changing external landscape, forge greater stakeholder trust and create competitive advantage as the world transitions to net zero.

Failure to prepare adequately will leave companies exposed to mainstream investor pressure, regulatory action, stakeholder dissatisfaction and potential climate litigation. The runway to mandatory climate reporting is short. With focus, board members are well positioned to steer their organizations towards providing balanced disclosures that demonstrate clear strategy and respond to stakeholder expectations.

This is a fast moving and dynamic environment. The time for action is now.