ISSB standards to require overhaul of systems

CA ANZ and Deloitte have urged finance professionals to start assessing the adequacy of their systems for gathering and storing the data required for upcoming sustainability disclosure reporting standards.

CA ANZ and Deloitte have collaborated to release a set of practical guides to help financial professionals and finance teams prepare for the new standards released by the International Sustainability Standards Board (ISSB).

ISSB released its first two IFRS Sustainability Standards at the end of last month which will pave the way for mandatory reporting in Australia.

Treasury has already signalled that the ISSB standards could become mandatory for Australian large-listed companies and financial institutions for 2024–2025 financial year.

CA ANZ said finance teams should start taking steps to prepare for the ISSB standards now.

“Some entities have already prepared for the disclosures by undertaking a gap assessment and developed a roadmap to their future sustainability reporting state,” the accounting body said.

“However, others are yet to start, and the advice is clear – start early. Don’t underestimate how long this will take, adopt a continuous improvement mindset and see this as an opportunity to strengthen existing processes.”

Data and systems

In order to prepare for the standards, entities will need to assess their current systems for gathering and storing sustainability and climate-related information.

“Currently, in many entities the systems and processes used to create and store sustainability and climate related information and data are less mature when compared to financial information. The information is often sourced from numerous systems and spreadsheets and manually aggregated for reporting,” CA ANZ said in its guide on data and systems.

Less mature entities tend to collect data in spreadsheets owned by a wide set of data owners with a high level of manipulation and increased likelihood of errors, the guide said.

“Entities which are more mature, on the other hand, tend to have automated processes that are supported by systems and relevant controls around data accuracy, completeness and reporting.”

“It is important for entities to map their current processes and understand the systems in place – including consideration of key controls to enable identification of gaps, points of improvement and capability requirements and uplift data quality and reporting.”

The standards also require that where sustainability and climate-related disclosures include financial information, the data used to develop these will need to be consistent with the corresponding financial information financial information reported in the entity’s financial statements.

Entities will also need to report their sustainability and climate-related financial disclosures at the same time as their related financial statements. The disclosures must be for the same reporting period as the financial statements.

CA ANZ and Deloitte warned this is likely to lead to challenges around resources and time constraints.

Finance teams will need to have a good understanding of the data required to report on relevant metrics and targets but also the data required to support decision making around strategy, risk and opportunity management and governance.

“Entities need to perform a gap analysis to identify where this data exists and is currently reported on, where the data is collected for other business activities but not reported on, and where there are absolute gaps in source data,” the guide said.

Some businesses may need to identify new control processes and invest in upgrading, expanding and restructuring of systems.

Developing a robust governance structure by assigning data owners with appropriate skill sets and formalising their roles and responsibilities to hold them accountable for capturing and managing sustainability and climate-related data and following due processes.

“Responsibilities can be embedded in performance KPIs. Upskilling where required will enable appropriate performance of responsibilities,” it said.

Strengthening processes

The CA ANZ and Deloitte guide said preparing for the standards gives entities an opportunity to “strengthen existing processes”.

Finance teams should review existing materiality assessment processes of sustainability risks and opportunities, the guide said.

“Entities that already undertake such materiality assessments for sustainability reporting may find that using ISSB’s definition could mean enhancing the current process to bring financial considerations more explicitly into the approach to determining materiality.”

Communicating the ISSB requirements with value chain partners and within the business will be another important step in preparing for the standards.

“The materiality assessment results can be leveraged to enhance and challenge the business strategy,” it said.

“[This includes assessing] the appropriateness and defensibility of an entity’s response to sustainability-related risks and opportunities,” the guide stated.