In developing the new set of sustainability reporting standards, the International Sustainability Standards Board (ISSB) has determined that its aim is to create a global baseline. As many global entities already carry out elements of ESG reporting, getting smaller companies in emerging markets to adopt the standards, which can be applied from 2024, is likely to be the biggest challenge.
It was therefore pleasing that the first IFRS Sustainability Symposium, which took place in Montreal, Canada as well as online, in February, included speakers from across Africa and Asia who discussed the challenge of bringing emerging economies and small companies along on the journey to adoption.
Of the listed companies that would qualify for investment, only about one-third provide ESG data
Lack of ESG data
Speakers described how many emerging markets are seeing the potential opportunities that the ISSB Standards could provide, and that the first jurisdiction to adopt them was Nigeria.
Kathlyn Collins, the head of ESG at Matthews Asia, talked about investment vehicles looking to construct portfolios with the intention of providing capital. Of the listed companies that would qualify for investment, only about one-third of these provide any ESG data. With many investors requiring ESG data, this could limit access to capital markets for companies in emerging economies.
The communication of the benefits rather than simply the cost of implementation will have to be clear
Raymond Chamboko, director at W Consulting in South Africa, noted that, across Africa, many entrepreneurial businesses do not know where to start with ESG, often wondering which guidance investors would want them to follow.
Better communication
There are clearly huge challenges, particularly in supporting small and micro-entities. According to Collins, only 16% of businesses that adopted the Sustainability Accounting Standards Board’s standards – the ISSB’s predecessor – had a market capitalisation below US$2bn, while only 17 listed companies in mainland China and 11 in India (out of 6,800) have adopted them. The communication of the benefits of the standards, rather than simply the cost of implementation will have to be clear, and this will be a big challenge.
Stakeholder cooperation
The big question to emerge from the symposium was how to move from talk to action. Of course, there is no one solution and certainly no quick fix.
Key to implementation will be cooperation from a range of stakeholders. These include accounting software providers, which could aid in the collation of data. It was noted that these companies have previously avoided Africa, as the markets were small with wide variation in standards. However, with one set of standards, platforms could more easily automate the collection and production of data.
The ISSB will also need to offer educational materials and guidance, provide capacity building support, facilitate adoption readiness groups and help companies be able to capture data.
Thankfully, the aim of this is more than an exercise in improved disclosures
Bigger picture
The panel also considered the benefits of ISSB standards adoption beyond the purely financial. For example, they could be used to minimise problems in the supply chain, such as food wastage, as well as highlighting areas such as inefficient use of land, the gender pay gap and child employment.
All of this is a stark reminder that while the endgame of a global set of sustainability reporting standards is important, there are bigger issues at stake.
Panel perspectives
Panellists noted how artificial intelligence and machine-learning-based data platforms can work with digitised smaller businesses to help entice investors seeking sustainable opportunities.
Matthew Gamser, CEO of the SME Finance Forum at the International Finance Corporation (the World Bank’s private sector arm), said that, with wider availability of user-friendly data collection and analysis networks, he supported the adoption of ISSB Standards by even the smallest firms, ‘provided that this is accompanied by the creation of a digital support infrastructure’.
Eliane Ubalijoro, global hub director for Canada at Future Earth, a network of scientists, researchers and innovators focusing on sustainability, said that the standards were ‘critical in terms of how we want to live our interconnectedness as humanity’.
Raymond Chamboko, director at W Consulting in South Africa, agreed that reliable, globally recognised datasets would help unlock capital flows, with the ISSB Standards ‘being a key cog in this wheel’. He added that businesses in emerging markets applying the standards would be able to demonstrate that their company is ‘not just focused on generating profit today but generating value in general’.
However, he warned that the final standards had to be user-friendly if small business were to adopt: ‘We need to be careful that the language can be understood by the people that are going to be using these standards.’
Eliane Ubalijoro, global hub director, Canada, Future Earth, a network of scientists, researchers and innovators focusing on sustainability, said that the standards were ‘critical in terms of how we want to live our interconnectedness as humanity.’
By Keith Nuthall
