TechSense Magazine #03

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TECHSENSE Magazine #03
The International Sustainability
Standards Board (ISSB) was established at
COP26 to develop a comprehensive global
baseline of sustainability disclosures for the
capital markets
To mitigate the damage, the United Nations is calling on governments
to work to stop adding carbon dioxide to the atmosphere by 2050
(Source: The New York Times, 2021).
Investor concern
Investors are not satisfied with voluntary ESG reports that can’t
be compared between companies. In an analysis that compared
the corporate reports and the Carbon Disclosure Project (CDP)
responses of 56 tech companies, researchers found a gap of 391
megatons of carbon emissions. Of which, 202 megatons came
from supplies consumed, and 189 megatons came from products
sold to market (Source: Nature Communications, 2021). Millennials
are the demographic group that are most concerned with ESG
investing and are the largest demographic behind investing and
are still growing, standing to inherit trillions in wealth over the
next decade.
Regulatory crackdown
Mandatory rules for ESG disclosures are arriving in multiple
jurisdictions worldwide. Regulators recognize the need for
consistency across jurisdictions, and we are seeing the regulators
converge on using the recommendations of the Task Force for
Climate-related Financial Disclosures (TCFD) when drafting
disclosure requirements. The ISSB’s General Requirements and
Climate Standards are also based on the recommendations of the
TCFD. The International Sustainability Standards Board (ISSB) was
established at COP26 to develop a comprehensive global baseline
of sustainability disclosures for the capital markets.
— Multiple jurisdictions following IFRS
standards
There has been a great deal of consolidation between standards
bodies in the last year. The publication of two draft standards by
the International Sustainability Standard Board (ISSB) in March
2022 could influence how mandatory disclosure regimes evolve.
The advantage to the industry of this standard is that the ISSB
framework is modeled after the IFRS’s accounting rules, which
are widely adopted, enabling organizations to leverage existing
infrastructure and consistent performance reporting across
financial and non-financial risks (IFRS).
starting in 2024″ (reporting in 2025 on 2024 data). It applies ″to
all companies listed on the EU regulated markets except for microcompanies.
Small and medium-sized enterprises (SMBs) have until 1
January 2026 to comply with the report requirements.″ An opt-out
clause could buy some companies time until 2028. The estimated
impact is that ″49,000 EU companies will be required to report
on sustainability information in the future, compared with 11,600
companies at present″ (Source: EY, 2022). ″For non-European
companies, the requirement to provide a sustainability report applies
to all companies generating a net turnover of €150 million in the EU
and which have at least one subsidiary or branch in the EU. These
companies must provide a report on their ESG impacts, namely on
environmental, social and governance impacts, as defined in this
directive″ (Source: Council of the EU, 2022).
In the US
In 2023, the SEC will require large, accelerated filers – companies
with more than $700 million in the hands of public investors – to
start capturing information on climate disclosures to be filed in
2024. Filers that have $75-$700 million in public investment will
start capturing information in 2024 and file in 2025. Small reporting
companies will start capturing information in 2025 to be filed in
2026 (Source: US Federal Register, 2022).
— So what can you do?
Socialize the new reality and prepare to report.
Inform
Understand the pending regulatory shift and how it will affect your
organization. Educate your executives and board about the risks.
Conduct a gap analysis
Identify the data gaps that will prevent you from satisfying all
stakeholders. New requirements around ESG reporting include
electronic tagging of climate related disclosures to XBRL. Survey
solutions will help fill those gaps.
Prepare to report
Start doing the upfront work required to surface the data needed
to report on your organization’s carbon footprint in a way that will
satisfy external auditors. Shore up your supplier relationships
and start the discussion on how they can help you report scope 3
emissions – those which are created by the products and services
that you consume and that you sell.
In the EU
The EU Corporate Sustainability Reporting Directive was adopted
in October 2022. Companies ″start reporting under the directive
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