Sustainability Reporting in theory and practice
Harmonized corporate reporting standards are required to shape the transition to a net-zero-emissions economy and to meet the information needs of investors. At the Sustainability Standards Conference on 10 June 2024, experts from various industries and disciplines discussed the implementation and current challenges of harmonized global reporting standards regarding sustainability. ISSB President Emmanuel Faber and keynote speaker Axel Weber, Chairman of the Board of Trustees of the House of Finance, stressed that sustainability disclosures are not a nice-to-have but will be essential for companies and investors in the future to mitigate risk and make informed future-oriented decisions.
The event was organized with the International Financial Reporting Standards Foundation (IFRS Foundation), the International Sustainability Standards Board (ISSB), the Accounting Standards Committee of Germany (ASCG), the Goethe University Frankfurt and the Leibniz Institute SAFE with the support from the House of Finance and Deutsche Börse Group.
Founded at the United Nations Climate Change Conference (COP26) in November 2021, the ISSB aims to develop a global baseline for reporting on environmental, social, and governance criteria. Information on sustainability activities has become an important factor in investment decisions.
At the same time, it has become clear that companies are undergoing various transformation processes, and that the standards do not currently address their different needs and starting points. Sue Lloyd, Vice President of the ISSB, pointed out: “If people fear that they are just going to get slapped over the wrist for doing a bad job, it is going to be very difficult to start a new wave of reporting. We need to create an environment where companies are encouraged to improve over time.” Companies should be transparent and start reporting. They do not have to start perfect, emphasized Lloyd.
Regulatory and industry perspectives
Lloyd was joined by Gülşah Günay from the Turkish Public Oversight Authority, SAFE Professor Loriana Pelizzon, Nadja Picard from the management consultancy PwC, and Adam Pradela from DHL Group to discuss the early adoption and practical experience of the ISSB standards from different perspectives. Lloyd emphasized to view sustainability reporting as a strategic initiative critical to long-term business value. Günay highlighted Turkey's proactive stance in adopting the ISSB standards and the challenges, particularly regarding EU sustainability reporting requirements and the collection of Scope 3 emissions data. Turkey has implemented an extensive capacity building program to ensure effective reporting and monitoring.
From a corporate perspective, Adam Pradela explained DHL's journey from voluntary to mandatory sustainability reporting. Consistent reporting standards are necessary to ensure international comparability. Securing data quality is a significant effort for companies but it provides strategic advantages for business decisions.
Nadja Picard, Global Reporting Leader at PwC, discussed the role of auditing in sustainability reporting and the importance of integrating financial and non-financial data. She also highlighted to collaborate within companies to meet the new reporting requirements.
Loriana Pelizzon also stressed the importance of data: “We need data that can be comparable. If we want to do some analysis at the macro level, we need to put the data together.” She addressed the challenges regulators face in ensuring the reliability and comparability of sustainability data in Europe and argued for consistent implementation of regulations to facilitate macroeconomic analysis.
Does biodiversity play a role in investment decisions?
At the conference, financial and natural scientists also contributed their perspectives and engaged in dialogue with companies, investors and ISSB standard setters. In particular, the importance of biodiversity is not yet sufficiently reflected in the standards.
Alexander Wagner, Professor of Finance at the University of Zurich, presented first empirical evidence of investor interest in the risks companies face from biodiversity loss. He showed that companies with a high biodiversity footprint have lost value following the signing of the Kunming Declaration in October 2021, which represents a milestone for global cooperation against biodiversity loss. In addition, investors start to demand a biodiversity risk premium from companies that could be affected by future biodiversity regulations.
Katrin Böhning-Gaese, Director of the Senckenberg Biodiversity and Climate Research Centre, and Michael Schmidt, Senior Advisor to the Board of LAIQON AG, discussed the challenges of measuring biodiversity impacts. Böning-Gaese emphasized that the biodiversity footprint of companies is based on averages and cannot capture the great importance of individual species and the negative effects of their extinction. From an investor's perspective, Schmidt emphasized that any quantitative measurement, however flawed, is better than none.
