International Sustainability Standards Board’s (ISSB) Sustainability Standards are the latest, and soon to be, most important frameworks planned in the sustainability reporting space. Retail sector CEOs, stakeholders, and investors need to become familiarised them with before mandated reporting kicks in mid-2024.
In June 2023, ISSB released its inaugural Sustainability Standards, made up of two parts, IFRS S1 and IFRS S2, short for International Financial Reporting Standards, Sustainability 1 and 2. The standards cover similar topics, with some key differences. S1 focuses on financially relevant sustainability disclosures, while S2 covers more widely climate-related financial disclosures, including scope 1, 2, and 3 emissions.
Together the standards are the biggest change in the climate disclosure reporting space in decades, and bring together many existing sustainability reporting frameworks such as Task Force on Climate-Related Financial Disclosures (TCFD), Climate Disclosure Standards Board (CDSB) standards, and Sustainability Accounting Standards Board (SASB) standards.
The standards aim to create a global baseline for sustainability reporting and to help provide reliable information to investors on sustainability-related risks and opportunities.
In the retail industry, these changes underline the importance of good emissions accounting, especially from scope 3 emissions across the supply chain, which make up most of retail emissions.
Another goal for the ISSB standards is to standardise the global disclosure standards reporting space. The standards largely build on the existing frameworks from TCFD standards. This is great news for retail businesses already recording and reporting on their climate-related data and a good incentive for all businesses to get up to speed before changes are well in motion.
The Australian Treasury indicated in a consultation paper this year that future climate reporting in Australia will closely follow the ISSB standards, and larger entities are expected to begin reporting in mid-2024. Australian Accounting Standards Boards (AASB) has been tasked with developing a mandated disclosure regime for Australia, which will be largely based on the ISSB S2 standards. AASB has recently released its first draft for consultation, which outlines the suggested adaptation for Australia. AASB is welcoming feedback on the draft until March 2024.
What is the ISSB?
The ISSB was established in November 2021 at the UN Climate Change Conference (COP26) under the International Financial Reporting Standards Foundation as a standard-setting body. ISSB was born out of the demand of both environmentalists and investors to have a standard single baseline of sustainability disclosures for the capital markets. The climate reporting space has been globally fragmented, with a range of standards and most emissions reporting being voluntary, making it difficult for investors to make informed decisions on climate-related investment risks and assessments.
The creation of ISSB sustainability reporting standards was endorsed by many international organisations and governance bodies like G20, G7, and the Financial Stability Board. In the future, reporting on climate related risks and data will become more straightforward for many retail businesses if the ISSB standards are widely adopted.
Further reading: What is the ISSB and why does it matter?
What do the ISSB standards mean for Australian retail companies?
Retailers in Australia can prepare for the ISSB standards by reviewing their existing climate data and opportunities across their business and compare them to the new standards. It’s critical to get a good overview of where your emissions are coming from, and while scope 1 and scope 2 emissions are easy to identify in retail, looking at your supply chain to get a good idea of quantifiable scope 3 emissions is especially important in the retail sector. This will most likely be the most labour-intensive part of getting up to date with the new standards, and having good carbon accounting systems in place is crucial in this process.
Further reading: Decarbonising strategies for Australia’s retail industry
One of the key objectives ISSB has set for the standards is interoperability between different sustainability standards. If you’re already collecting emissions data in accordance with another climate reporting framework like TCFD, chances are most of it will be applicable to the new standards, and is a great starting point to develop your reporting further.
Besides interoperability, the new standards are expected to bring greater transparency and comparability into the sustainability reporting space. This gives retailers the opportunity to get ahead of the curve by making sure they are doing everything they can to decarbonise their supply chains, present accurate and transparent information on the climate impact of their products, and optimise existing processes to lower their emissions. Greater transparency in retail could also trickle down to better understanding of environmental impacts among consumers and stakeholders on ESG factors, and hopefully cut down greenwashing efforts with better accountability.
Another added ISSB retail prospect is better communication between retailers and investors on climate-related risks. A single global standard that’s verifiable, reliable, and comparable will make the process more simple and cost-effective for investors and could in turn bring more capital to businesses willing to put in the work in good reporting and efforts to move towards net-zero.
The standards will also help drive focus to improve ESG calculations and better assess enterprise value, not just from a financial perspective but also with climate risks in mind. If adopted widely, ISSB standards could help improve the quality of climate data across industries and increase reporting efficiencies.
How and where will this information be disclosed?
Australian companies will release their climate-related financial disclosures in their company’s annual report. These reports should clearly outline the company’s climate-related governance structure, climate risk strategy assessments, as well as relevant metrics and targets.
The disclosure of financial reports and climate-related information will be interconnected under the new standards. This highlights the importance of a companywide approach to reporting on climate and ESG matters. Effective reporting will require a collaborative effort, involving key stakeholders from CFOs to department managers, and will be essential for successfully implementing the new frameworks.
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Timeline for implementation
Based of the June 2023 consultation paper released by the Treasury, all companies lodging financial reports under Chapter 2M of the Corporations Act, and who meet two of the following criteria will be required to report under climate-risk disclosure legislation by 2027-2028:
- The consolidated revenue for the financial year of the company and any entities it controls is $50 million or more;
- The value of the consolidated gross assets at the end of the financial year of the company and any entities it controls is $25 million or more;
- The company and any entities it controls have 100 or more employees at the end of the financial year.
However, many larger entities will begin reporting as early as mid-2024. Currently, the proposed timeline for implementation looks like this.
How can retail businesses prepare for the new standards?
1. Familiarise yourself with the standards. Get to know especially the four pillars of the ISSB S2 standards: governance and risk management, strategy, metrics, and targets.
2. Conduct an overhaul of current emissions reporting and identify gaps in data. Scope 1 emissions as well as scope 2 emissions are often most straightforward for retail businesses to track and measure through electricity bills or fuel combustion. Scope 3 emissions are much more challenging to measure as they are indirect emissions occurring in the business's upstream and downstream operations. Find and identify areas across your supply chain and the rest of the business where you don’t have access to consistent and clear emissions data. Are there ways to acquire more detailed emissions data from your supply partners or potentially switch to suppliers with clear emissions reporting?
If you’re not yet recording your emissions, Sustain.Life gets you started easily by providing a single platform to measure, manage, and report your emissions data.
Sustain.Life also helps you compare suppliers and combine emissions data from supply partners onto one platform, and allows you to connect your utility providers into one carbon accounting system.
3. Check and compare your current reporting standards to ISSB standards. If you are already using a sustainability reporting standards framework, like TCFD, CDP or SASB, compare it to the suggested ISSB standards, and identify major differences that need to be covered. If you’re not yet using any reporting frameworks or use multiple, Sustain.Life helps you align your reporting to global standards, making the transition to ISSB reporting smoother.
4. Ensure you have identified climate-related risks and opportunities within the business. Also make sure teams across your business are well informed and up-to-date with the reporting changes, how these will affect them, and the importance of considering various warming scenarios, ensuring a comprehensive approach to risk management. By keeping our teams informed, you help them to embed sustainability into their operations, fostering resilience and responsibility. Sustain.Life helps you identify ESG risks to move towards a decarbonised supply chain.
5. Consider how your company strategy aligns with your sustainability plans and targets. While the standards will look into how sustainability factors impact the business financially, how is your business taking sustainability into account in growth plans and wider agenda? Setting clear science-based emissions targets and establishing a good practice of communicating them both internally and externally ensures you are up to speed when ISSB disclosures kick in. Sustain.Life can support your business both in setting targets, and reporting on them.
By being proactive, identifying climate-related risks and issues in advance, prioritising consistent and accurate emissions accounting, and reporting transparently will ensure you’re not caught out with insufficient climate data when reporting becomes mandated. Making changes in advance could also work as a strategic advantage in a retail industry where consumers are more and more interested in the sustainability aspects of the products they are buying.
Not sure where to start? Sustain.Life will help you get started on your sustainability journey today.
Sources
1. International Financial Reporting Standards Foundation, “International Sustainability Standards Board,” https://www.ifrs.org/groups/international-sustainability-standards-board/ Accessed on November 14, 2023
2. Australian Government The Treasury, “Climate-related financial disclosure Consultation Paper,” https://treasury.gov.au/sites/default/files/2023-06/c2023-402245.pdf Accessed on November 14, 2023
3. Australian Accounting Standards Board, “Climate-related financial disclosure,” https://aasb.gov.au/media/5jmkf3er/ps_climate_03-23.pdf November 14, 2023
4. International Financial Reporting Standards Foundation, “Ten things to know about the first ISSB standards,” https://www.ifrs.org/news-and-events/news/2023/06/ten-things-to-know-about-the-first-issb-standards/ November 14, 2023
