Sustainability reporting - 10 questions boards and audit committees should be able to answer

As noted in our article, 31 December 2021 sustainability reporting update, developments in sustainability reporting have moved at an unprecedented pace in recent months and years. The demand for sustainability disclosures to be made by entities in a globally consistent manner has become a priority for the investor community as well as various levels of government worldwide. These rapid developments have increased the need for Boards of Directors (Boards) and Those Charged with Governance, such as audit committees, to educate themselves and remain current on the status of sustainability reporting requirements worldwide.

The role of the Board of Directors (or equivalent body) and Those Charged with Governance

Public pressure to disclose information about an entity’s approach to sustainability issues including climate change, environment, and social/governance issues has quickly evolved from calls to action into current and proposed requirements. Many Boards are either currently or will very soon be required to drive the strategic direction that entities take in meeting their sustainability reporting requirements. Most sustainability reporting frameworks (including the TCFD and the prototype ISSB standards) require disclosure of the approach that an entity’s governance structure takes in addressing these issues.

If boards take no action, but disclosure is still required, an entity may be required to disclose its lack of action to investors, which may have an adverse effect on the entity’s ability to raise capital and meet its investors’ demands.

This article highlights 10 fundamental questions that all directors and audit committees should be able to answer, regardless of where an entity may be in its sustainability reporting journey.

Boards and Audit Committees should know the answer to these 10 sustainability reporting questions:
  1. What is sustainability reporting and how does it differ from ‘traditional’ financial reporting?
  2. Why are investors and stakeholders demanding this type of information?
  3. Will we be impacted by sustainability reporting developments?
  4. What standards exist and are currently under development?
  5. Which entities will have to apply IFRS Sustainability Disclosure Standards? Will all countries adopt them?
  6. What are IFRS Sustainability Disclosure Standards and how are they being developed?
  7. What will IFRS Sustainability Disclosure Standards require and where would entities disclose this information?
  8. When will we be required to provide sustainability disclosures?
  9. How will our internal controls and financial reporting systems be affected?
  10. How do we get started?

Our recent publication, Sustainability Reporting – 10 Questions boards should know the answers to (February 2022) provides answers to these 10 fundamental questions.

How BDO can help?

Sustainability disclosures are likely to evolve as regulatory and other sustainability disclosure requirements increase and entities’ business activities develop. The process described above is not a one-off project with a fixed completion date, but is instead a series of steps that will need to be revisited and refined over time. For example, an entity may currently have very limited information about how it identifies risks and opportunities related to climate change, as well as how it affects its strategy. This might initially result in relatively brief sustainability disclosures, with enhancements being implemented over successive future reporting periods. Entities will need to respond and develop plans to address their sustainability risks and opportunities, which are ultimately business risks and opportunities.

BDO has expertise to assist you in your sustainability reporting journey. Please contact BDO’s IFRS & Corporate Reporting team to get you started.