Last week, the International Sustainability Standards Board (ISSB) released their finalised sustainability reporting standards. Titled IFRS S1 and IFRS S2, the prior is a framework for companies to disclose broad sustainability related risks and opportunities. IFRS S2 builds on S1 and focuses on climate reporting specifically such as Scopes 1, 2 and 3 carbon emissions. Both standards touch on strategy, good governance, and risk mitigation. The next step for the ISSB is to work with organisations and governments around the world to ensure that the standards are adopted as widely as possible. ISSB Chair Emmanuel Faber stated that these new standards are “ just the starting point as we consult on our future priorities, beyond climate.”
The ISSB’s new sustainability and climate standards are only the beginning when it comes to the alphabet soup of ESG regulations and disclosures. Business leaders must have a strong understanding of ESG reporting frameworks in order to comply with new laws and requirements. Our world-class ESG and Climate & Biodiversity programs for boards and business leaders are an excellent way to do that.
1. Key points of the new ISSB standards. After a long consultation process, the ISSB’s finalised reporting frameworks are perhaps the biggest news in ESG at the moment. The new frameworks aim to set a standardised global disclosure framework that consolidates existing reporting standards and avoids duplicate reporting. It has broad support across countries and industries while creating opportunities for capacity building-partnerships. IFRS S1 and S2 also integrate into other reporting frameworks such as that of the Global Reporting Initiative, and are designed to be used in conjunction with standard financial reporting. Finally, companies can use these standards to communicate climate and sustainability related information to investors in a clear and effective manner. While these new standards are not yet required around the world, companies should act proactively as it is likely that many governments will make them mandatory in the near future.
2. Autocratic CEOs: A thing of the past. Since Elon Musk took over as the new CEO of Twitter, he has made headlines for his ruthless leadership style and decision making. Shilpa Tiwari, co-founder of a boutique ESG solutions company, believes that the age of CEOs who lead mercilessly is over. Businesses operate in an increasingly complicated landscape, facing unprecedented crises such as the Russo-Ukrainian war, pandemic, skyrocketing cost of living, and worsening natural disasters. It is increasingly important for executives to have soft skills such as collaboration, adaptability, open-mindedness, and communication. Leaders who encourage employees to take risks, consider stakeholder demands, and create a culture of learning rather than focusing on shareholder returns alone are the leaders of the future.
3. Tying executive compensation to ESG the right way. Linking c-suite pay to ESG metrics is becoming more and more common, with an IBM survey finding that half of CEOs have ESG compensation targets, up from 15% in 2022. Here are three important aspects for companies to consider when developing ESG compensation strategies:
- Choose ESG metrics that are most important to the company’s operations and value drivers. For example, energy companies focus on environmental metrics while tech companies emphasise human metrics such as diversity.
- Is ESG already tightly woven into corporate culture and strategy? If so, compensation targets may not be necessary as an incentive. Companies that are already making significant progress on ESG issues may choose to implement executive pay targets for reputational rather than incentive-related reasons.
- Ensure the ESG targets chosen can be accurately measured. ESG ratings are notorious for being difficult to measure, as scores vary between rating agencies.
4. New United Nations treaty protects international waters. After two decades of negotiations, the first biodiversity treaty that aims to protect marine environments in international waters outside national boundaries was adopted by 193 countries last week. The high seas make up ⅔ of the planet’s oceans, and are home to a vast array of marine biodiversity but often slipped between the cracks of national conservation efforts. Under this new treaty, adoptees must consider the environmental impacts of their actions in the open ocean beyond territorial boundaries. The world’s oceans face a variety of challenges such as overfishing, water acidification, and increasing ocean temperatures. The agreement will have wide ranging impacts on a number of industries that operate primarily in open waters such as shipping and logistics, fishing, and leisure cruises.
5. 2023 State of the Global Workplace report. This week, Gallup published its annual State of the Global Workplace report. Key points include that employee engagement was at an all time high in 2022 at 23% after falling during the pandemic. Almost 60% of employees were found to be quiet quitting, or psychologically disengaging from their work. When asked what single change they would make at their job to improve their experiences there, 41% of quiet quitters chose engagement or culture. 28% would improve pay and benefits, and 16% would change wellbeing policies. Stress and burnout reached record highs, as 44% of respondents answered that “they experienced a lot of stress the previous day”. Most employees surveyed said they felt it was a “good time” to search for a job in their area, and 51% shared they were looking for a new job.
Ira Srivastava is Competent Boards’ Program Coordinator. Follow Competent Boards on LinkedIn.Back To News & Views