2024’s sustainability reporting standards

As we progress through 2024, businesses operating in the UK and the EU are bracing for a significant shift in sustainability disclosure requirements. This year marks the introduction and updating of several mandates, each designed to offer a clearer picture of corporate environmental impacts and readiness for sustainability risks and opportunities. Understanding these changes is crucial for businesses, and in turn, their investors, to ensure compliance and continued focus on essential sustainability projects.

Global perspective: The ISSB’s unifying standards

The International Sustainability Standards Board (ISSB) is at the forefront of global efforts to standardise corporate sustainability reporting. Last year, it launched two pivotal standards – IFRS S1 and IFRS S2, addressing corporate sustainability and focusing on climate adaptation and mitigation. With the ISSB gaining momentum, especially after COP28, both the UK and EU are aligning future mandates with its guidelines, a crucial step towards global reporting uniformity.

The UK’s progress

In the UK, the focus is on several key areas:

1. Transition Plan Taskforce: Mandating net-zero transition plans for major businesses, the UK aims to align industry strategies with overarching decarbonisation goals. Despite delays, a decision on implementing these mandates is expected before the next general election. Prime Minister Rishi Sunak intends to call this in the latter half of 2024.

2. TCFD adoption: As the first to mandate corporate climate risk disclosures in line with the Taskforce on Climate-related Financial Disclosures (TCFD), the UK continues to lead in climate governance. An expansion of this mandate to include smaller businesses is on the horizon.

3. Emerging TNFD framework: Mirroring the TCFD, the Taskforce on Nature-related Financial Disclosures (TNFD) focuses on nature-related impacts, with over 300 businesses pledging to align reports voluntarily earlier this month at Davos.

4. FCA’s Sustainability Disclosure Requirements: The Financial Conduct Authority (FCA) has enhanced transparency around ‘sustainability’ or ‘ESG’ labelled funds, requiring clear and substantiated information in this area. This means asset managers can no longer use ambiguous marketing terms. Rather, they now have to select one of four labels and disclose information to demonstrate that at least 70% of the fund is allocated to support its label.

EU’s comprehensive reporting directives

The EU, not to be outdone, has its set of directives:

1. Corporate Sustainability Directive (CSRD): Replacing the Non-Financial Reporting Directive (NFRD), the CSRD’s aim is to boost transparency. It will expand sustainability reporting across a wider range of companies.

2. European Sustainability Reporting Standards (ESRS): These detailed guidelines support the CSRD, focusing on environmental, social, and governance (ESG) aspects based on double materiality assessment.

3. Corporate Sustainability Due Diligence Directive (CSDDD): This directive requires companies to perform thorough environmental and human rights due diligence, with stringent penalties for non-compliance.

Why engagement matters

In this evolving landscape, engagement with portfolio companies becomes more vital than ever. As sustainability reporting standards become more intricate and comprehensive, investors and stakeholders need accurate and comparable information to make informed decisions. By actively engaging with their portfolio companies, investors can ensure these firms are not only compliant with new mandates but are also effectively managing their environmental and social impacts. This proactive approach can lead to better risk management, improved sustainability performance, and ultimately, a positive impact on investment returns.

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