• The new ISSB standard will soon be adopted in Australia
  • PwC has released a report on how Australian companies are faring ahead of the new standard
  • The report was critical towards ASX 200 companies

Investors have been calling for greater availability of information of ESG matters for some years now.

For many, the answer could well be the International Sustainability Standards Board (ISSB) – which could do for sustainability reporting what the IASB did for financial reporting.

The ISSB was introduced during last year’s COP26 event, and will seek to deliver a comprehensive global baseline of sustainability-related disclosure standards.

The aim is to provide investors and other capital market participants with the key information that they need.

Australia is undoubtedly following suit as stakeholder activism and regulators at home become increasingly concerned with greenwashing.

All of this points to a clear need for companies to address the proposed reporting requirements of the ISSB sooner rather than later.

Are Aussie companies up to scratch?

The first two global sustainability standards released in March as part of the ISSB were:

IFRS S1, which is the General Requirements for Disclosure of Sustainability-related Financial Information

and

IFRS S2, which is the Climate-related Disclosures

A recent report by PwC Australia has put a spotlight on how Australian companies are faring ahead of the ISSB release.

The report revealed a significant uplift in the comprehensiveness of ESG reporting across Australia’s leading companies over the last three years.

But it was critical of ASX 200 companies, saying that despite improvements in ESG reporting, ASX200 disclosure levels still need to step up to meet the proposed standards of the ISSB.

The PwC report found that ASX 200 companies focused too much on the impact they have on the economy, environment and people – and too little on financial impact.

As such, PwC concluded that there are compelling reasons for ASX 200 companies to accelerate their efforts.

 

Scope 3 reporting is crucial

Kristin Stubbins, assurance leader at PwC Australia believes Australian companies have made significant progress in measuring climate and sustainability performance, including disclosure of Scope 3 emissions.

The PwC report revealed that 49% of Aussie companies have disclosed Scope 3 emissions in some form.

“However, many organisations still need to improve their financial disclosures of the risks and opportunities that exist,” Stubbins said.

Stubbins argues that Scope 3 reporting is critical because for many companies, a large amount of their emissions occur upstream via suppliers and raw materials, or downstream through use and disposal of products.

“Given its far-reaching impact, every area of the business could be affected, from supply chain and product development to reporting, and marketing,” she said.

 

‘No regrets path’

The PwC report found that 78% of the ASX50 provide some level of disclosure on ESG topics relevant to their industry.

Disclosure has also improved regarding how companies identify, prioritise and address ESG topics considered most important to their business.

Over 74% of the ASX50 disclosed the process undertaken to identify these topics, and 22% have outlined the critical issues relevant for all stakeholder groups.

When looking at the bigger ASX200 cohort however, there are consistent gaps in disclosure under the S2 guidance.

As mentioned before, the proposed IFRS S2 sets out the requirements for identifying, measuring and disclosing climate-related risks and opportunities.

In terms of governance, the most significant gap is around disclosure of skills.

Only 25% disclose the specific expertise of board members concerning climate change; and only 6% disclose the training the board has undertaken or are about to undertake.

For strategy, the biggest gap is assessing the financial impact of the risks and opportunities, with only one in five companies providing disclosures on performing a scenario analysis; how significant climate-related risks and opportunities affected the bottom line.

“To meet the proposed S2 requirements, companies will need to provide more detailed disclosure of decarbonisation transition plans to address climate risks,” Stubbins said.

“Boards and executives are being asked to work towards a ‘no regrets path’.

“They need to stay on top of the evolving regulatory landscape; ensure a collaborative and holistic view is being formed which considers all stakeholders within their organisation; and prepare for impending ISSB changes,” Stubbins said.

 

 

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