As sustainability consultants, we are often asked, “Do you do sustainability reports?” So, this week, we’re exploring the evolving landscape of corporate reporting, where market forces are driving sustainability to become an increasingly integral part of financial disclosure.   

The International Financial Reporting Standards (IFRS) Foundation has taken a leading role in this shift by establishing global standards for sustainability-related financial information. This provides the markets with a consistent and reliable framework for companies to disclose material sustainability risks and opportunities. However, sustainability reporting is not merely an end in itself. It’s a tool — a means to achieving broader goals. The objective is not profitability, but rather amplifying it through the potential benefits of sustainability reporting, ranging from improved operations and risk management to increased innovation and stakeholder trust.  

That said, reporting — whether for sustainability or otherwise — comes with costs. It requires effective strategies, establishing efficient workflows, cross-company coordination, and thorough data collection, analysis, and disclosure. At Emerald, we help organizations navigate this process by providing “the means” for effective sustainability disclosure. No matter where you are on your transition, we can help you leverage the important concepts of ESG disclosure to integrate sustainability throughout your organization, turning it into a source of value through actionable goals and strategies.   

Bridging the GAap: From Accounting to Sustainability-Related Financial Reporting 

How sustainability is changing the landscape of business may not be immediately apparent to those not closely following developments across the market. It will not change the role of business in society to generate value; however, a more nuanced transition from profit-centric to purpose-driven is increasingly palpable throughout companies and boardrooms. This shift is inextricably linked to the increasingly important role of ESG in corporate strategy, but how do companies measure the impact of the resources they spend on sustainability?  

Traditionally in the U.S., company performance has been primarily measured using Generally Accepted Accounting Principles (GAAP) focusing on the financial performance of operations and assets. Recent developments indicate the transition to sustainability is driving an evolutionary leap forward in accounting.       

Laying a Foundation on Globally Accepted Sustainability Infrastructure  

Enter the IFRS Foundation, the not-for-profit organization that brings transparency, accountability, and efficiency to global financial markets, aiming to foster trust and long-term financial stability by overseeing the work of two main standard-setting boards:  

1) International Accounting Standards Board (IASB): The IASB is responsible for developing the robust International Financial Reporting Standards (IFRS) that provide a globally consistent and verifiable approach to financial reporting (e.g. FASB and IASB have been collaborating since 2002 to converge U.S. GAAP with the International Financial Reporting Standards used in over 140 jurisdictions).  

Until recently, sustainability reporting was plagued by a complex alphabet soup of countless standards and frameworks. Navigating this labyrinth was a daunting task for even the most seasoned sustainability professionals; however, the emergence of IFRS S1 and S2 on June 26, 2023, as the new standard for sustainability accounting, marked a significant step towards harmonization.   

“Sustainability accounting as a discipline focuses on using information about a company’s performance on material sustainability topics to inform a holistic, fundamental analysis of the company, rather than on applying subjective labels.”   

- IFRS Foundation’s FSA Level II Study Guide  

Building a Unified Framework for Global Sustainability Reporting 

Through the ISSB’s consolidation of and alignment with key organizations, the IFRS Foundation laid the groundwork for a more coherent and comparable approach to sustainability-related financial reporting. In June of 2022, the ISSB completed the consolidation of: 

1) The Climate Disclosure Standards Board (CDSB): An initiative of the Carbon Disclosure Project (CDP). 

2) The Value Reporting Foundation (VRF): Formed through the merger of the Sustainability Accounting Standards Board (SASB) and the International Integrated Reporting Council (IIRC) just one year earlier. 

The ISSB also benefits from the support and collaboration of several other influential organizations, which aim to further align their efforts with the IFRS sustainability standards, including:  

• The International Organization of Securities Commissions (IOSCO), which provides regulatory backing.  

• The Task Force on Climate-related Financial Disclosures (TCFD), offering frameworks for climate-related financial disclosures.    

• The World Economic Forum (WEF), contributing to the development of global sustainability standards.  

• The Global Reporting Initiative (GRI), which, through a Memorandum of Understanding (MoU) with the IFRS Foundation, aims to create a seamless, global, and comprehensive sustainability reporting system that meets the needs of both investors and a broader range of stakeholders.  

• The World Resources Institute (WRI) and The World Business Council for Sustainable Development (WBCSD), which jointly govern the GHG Protocol. Their MoU with the IFRS Foundation ensures ongoing compatibility and collaboration between their standards to maintain alignment with sustainability standards and ensures the ISSB is actively engaged in decisions related to the GHG Protocol.  

This consolidation, combined with the collaborations, aims to create a comprehensive and globally accepted set of sustainability reporting standards.  

IFRS S1 & S2 Sustainability Reporting: Accounting’s Evolution as a Shield Against Greenwashing  

The stock market crashes of the late 1920s and the subsequent global depression fueled a reconciliation in the field of accounting. It transformed a once non-standardized system of historic recordkeeping that lacked transparency and was sometimes used to manipulate corporate value into a systematic practice that delivers accurate, reliable, verifiable, and timely financial information primarily to investors, regulators, and management, to make informed decisions.   

Today, we face a new crisis: climate change. The Intergovernmental Panel on Climate Change (IPCC) has unequivocally confirmed business and modern society are the primary sources driving climate change. It is increasingly clear that the impact of climate change in most cases represents a negative risk to business. This, combined with the ubiquitous nature of climate change, introduces additional sustainability factors when considering the fundamental corporate and societal value of companies. Like the ways some companies manipulated financial data to attract speculative investments prior to GAAP, some organizations are now using climate change to make unsubstantiated claims about their products and services’ environmental benefits in order to capture a larger market share and increase profits — a practice known as greenwashing.  

Much like the post-depression reconciliation in accounting, the consolidation of sustainability reporting standards under IFRS S1 and S2 provides a standardized, common language that marks a leap forward in the evolution of accounting. Based on existing, globally accepted accounting practices, IFRS sustainability standards narrowly focus on the identification of ESG-related risks and opportunities that have a reasonable likelihood to affect a company’s cash flow, access to finance, or cost of capital over the short-, medium-, and/or long-term. This approach to sustainability reporting offers a powerful tool to not only combat greenwashing, but also provides management with material sustainability information critical to implementing this type of strategy.  

Sustainability-related financial reporting is not a one-time action; it requires a company-wide shift. This transition must be strategically defined by board oversight, led by management, and implemented operationally through intentional processes that are industry-specific, and tailored to the unique circumstances, culture, and competitive advantages. Successfully navigating this transition positions companies to capitalize on the numerous benefits of sustainability reporting, including: 

• Optimizing operations 
• Identifying risks and opportunities comprehensively 
• Sparking innovation in new products and services 
• Building trust with a wider range of stakeholders 
• Protecting and enhancing corporate reputation 

“Strong financial performance over time is possible only if companies are well governed and the social and environmental assets underlying those returns are not depleted.”    

- IFRS Foundation, FSA Level I Study Guide  

Partnering with Emerald for Effective Sustainability Reporting 

As sustainability consultants, Emerald understands the complexities and challenges that come with sustainability reporting. The evolving landscape, marked by the adoption of global standards like IFRS S1 and S2, presents opportunities for organizations to integrate sustainability into their financial disclosures. But as we've explored, sustainability reporting is not just about compliance — it’s about creating value, building trust, and optimizing business operations. 

At Emerald, we don’t see sustainability reporting as an end goal, but rather as a tool to help organizations achieve broader strategic objectives. Whether you are just beginning your sustainability journey or looking to refine your existing processes, we can help. Our team works alongside your organization to implement efficient workflows, streamline data collection, and develop actionable ESG strategies that support long-term success. 

Let Emerald guide you through the intricacies of sustainability-related financial reporting. Together, we can help your business navigate the complexities of disclosure, turning sustainability into a source of innovation, stakeholder trust, and enhanced profitability.