Sustainability reporting: The New Normal
– Vinod Kothari and Payal Agarwal | corplaw@vinodkothari.com
Readers of financial statements get to know the performance of the company in terms of its financial accomplishments, asset values, etc. However, in a world where sustainability of business models in not very long run will be impacted by environment, climate change, social factors, etc., readers of financial statements also need to be informed about the sustainability aspects of a company’s business model.
Over time, sustainability reporting, either on voluntary basis or as a part of listed company reporting, has become a widely accepted practice, at least by large companies. A KMPG Survey of 2022 states that “rates of sustainability reporting among the world’s leading 250 companies are at an impressive 96 percent”.
While there have been various voluntary sustainability reporting standards such as GRI Standards, SASB Standards, CDP Standards, IIRF, GHG protocol etc, the most recent development in the field of sustainability reporting standards is the IFRS Sustainability Standards, prepared as a consolidation of various major sustainability reporting standards around the world. Further, various countries, mostly through the stock exchanges, have formulated their own mandatory sustainability reporting requirements in full or partial adoption of such voluntary standards.
Currently, the sheer multiplicity of standards is baffling. In mid-2019, the NYSCPA ran an article titled As Sustainability Frameworks Multiply, Navigating Them Becomes a Concern. It quoted the-then chair of IASB saying: “There are simply too many standards and initiatives in the space of sustainability reporting”. The situation is seemingly leading to some consolidation, as the various standards bodies are collaborating. However, even as of now, there is no clear sense of direction, as the requirements of mandated sustainability reporting quite often differ from those of voluntary standards such as GRI.
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