Natural Resources Forum ESG Week webinar – Sustainability disclosures: embracing new ISSB standards in an already complex reporting environment
By Tamara O’Brien
A step in the right direction, or a step too far? In this webinar, Claire Bodanis and fellow panellists Carol Bell, Co-Founder of Chapter Zero; Storm Taylor, ESG Lead, Vulcan Energy; and Corey Walrod, member of the ISSB Technical Committee, discuss the nitty-gritty of what IFRS Standards 1 and 2 mean for the natural resources industry.
It’s easy to forget, in the maelstrom of ESG debate and regulation, that at the heart of it are companies of people working in the real, physical world. And work doesn’t get more physical than in the natural resources sector. ‘Natural resources’ covers everything from oil, coal, natural gas, metals, stone and sand, to air, sunlight, soil and water, to animals, birds, fish and plants. These precious and hard-won resources are the raw materials for our food, fuel, built environment and manufactured products. We simply couldn’t exist without them.
So natural resources companies have a special place at the ESG table. And it was fascinating to hear from some of them in a webinar held by the industry body, The Natural Resources Forum, during their annual ESG Week. Claire, who has a foot in both the company side (she and Falcon Windsor have written and produced annual reports for many a natural resources client) and in the ESG regulatory/reporting camp, brought rare insights into both.
The topic under discussion was what a person of crude understanding such as myself would interpret as ‘What fresh hell is this’. More seriously: the introduction in June of International Sustainability Standards Board (ISSB) Standards 1 (general requirements) and 2 (climate) has, to some minds, simply added to the alphabet soup of regulation around ESG.
But is ISSB more helpful to companies than they might realise? And what challenges and opportunities does it present to the crucial natural resources sector?
Moderator Jade Davenport, an ESG reporting and content strategist at consultancy Tavistock, gave a brief history of sustainability reporting: from slow beginnings in the 80s and 90s, to an explosion of frameworks, standards and voluntary initiatives in the last few years – 13 at the last count. And then came ISSB…
With that it was over to Corey Walrod, actual member of the ISSB Technical Committee. No pressure Corey, but um… what does ISSB bring to the party?
Unfazed, Corey explained how the IFRS set up ISSB basically to fight fire with fire. Unavoidably, you have to make sense of regulation with more regulation: one ring to rule them all, as it were. ISSB will provide a global baseline of ESG reporting, by incorporating the best of existing frameworks – from SASB, CDSB, TCFD, GRI, the SEC, EFRAG and so on. It will rationalise them, build on them, and establish commonalities of language and materiality across jurisdictions.
And despite appearances – the weeds one gets sucked into within a nanosecond of any discussion of ESG! – this isn’t regulation for regulation’s sake. It’s to help beleaguered investors sort the sustainability wheat from the chaff, and push the world’s money where it desperately needs to be.
Claire next, and she set out her stall with a resounding endorsement of ISSB. Big fan of its principles-based approach. Which, like that of the UK (and unlike the more rules-based, tick-box approach of the US and EU), enables companies to tell a richer and more nuanced truth about their company, alongside the data. All to the benefit of the aforementioned beleaguered investor. Which brought her to her elevator pitch about the ultimate purpose of reporting, which she’s currently implanting into the AI debate and elsewhere:
To build a relationship of trust with investors and other stakeholders, through truthful, accurate, clear communication that people believe because it tells an honest, engaging story.
So that’s the underlying thinking. Then, swiftly replacing her philosopher’s beret with her reporting hard hat, Claire assured corporate listeners that the new ISSB standards were unlikely to be the hassle they were expecting. She picked up on Corey’s point about ISSB being aligned with existing standards. Which means, if you’re reporting to one of the voluntary frameworks like GRI or SASB, you’re probably meeting a lot of ISSB’s requirements already. Even more so if you’re working to TCFD.
For Dr Carol Bell – one of the founders of Chapter Zero, a non-executive director of energy and resource companies, and currently working on the transition to a net zero carbon future, following a 40-year career in investment banking – the ISSB standards are a big step forward. The overarching aim of corporate directors is to oversee risk and ensure capital is committed to the right areas, she said, and better disclosure is a by-product of that aim. So anything that simplifies disclosure, and enables investors to make valid comparisons between companies is good news. For smaller companies, resourcing can be an issue but engaging the whole company in selecting the right data could bring big benefits both for the company and the transition to net zero. And with her investor hat on, as board member of a BlackRock Investment Trust, Carol is looking forward to having some global comparability at last with respect to sustainability disclosure.
Storm Taylor produces ESG reports as part of her sustainability role at Vulcan Energy (which, incidentally, is behind a fascinating project to produce the world’s first zero-carbon lithium). She told us that, while Australia has ‘quite a long way to go’ in sustainability reporting, her own company already reports voluntarily and is doing much to align with the new standards by 2025. With operations in Germany, Vulcan is dual-listed, and is on the high-transparency Prime Standard of the Frankfurt Stock Exchange. Which presented a whole new challenge, and the ‘framework fatigue’ she experienced wading through the quagmire of disclosure standards clearly remains fresh in her memory.
It’s a serious issue for companies generally. Another is overcoming what she described, only half-jokingly, as ‘terror’ from the financial team – who are wondering how on earth to amalgamate sustainability factors into financial reporting.
She finds it helpful to view the application of standards simply in terms of good governance; showing that you understand the risks. Unfortunately, there are no shortcuts to getting your head round the technicalities in the first place. She’s taking advice from a variety of sources (including Tavistock), reading everything she can lay her hands on, doing a gap analysis to discover where the company might not be ready – and above all, working with and educating teams internally.
‘The fear’ met with a good deal of sympathy from the panellists. As Corey said, we’ve had a hundred years to refine financial reporting standards, while proper sustainability standards have been around for less than a decade. But he reminded us that it’s a transitional process, one that ISSB will quickly learn from and improve as they go along. Moreover, proportionality is built into IFRS S1: reporters are asked only to report information that is reasonable and supportable, without undue cost or effort in the context of their operations.
So it seems that, as with many things in life, ESG regulation is a game of fortunately/unfortunately. And it usually ends, as the panellists did today, on a ‘fortunately’. Long may it continue.