The end of June marks a significant milestone in the development of new sustainability and climate disclosure standards from the International Sustainability Standards Board (ISSB), as the consultation period draws to a close. 

The International Sustainability Standards Board (ISSB) is set to play a crucial role in shaping environmental, social, and governance-focused disclosures that have a significant impact on economic and investment discussions in the business world, with the introduction of a cohesive, global standard on non-financial reporting. Recently, the ISSB proposed its first two sustainability standards: IFRS S1 - General Requirements for Disclosure of Sustainability-related Financial Information, and IFRS S2 - Climate-related Disclosures. 

While many businesses across the world are already voluntarily adopting several non-financial reporting standards, the ISSB’s intention to establish a global framework brings together facets from existing standards, in collaboration with bodies like the Global Reporting Initiative (GRI). Moving forwards, these standards will serve as important guidelines for informing investors about a company's sustainability-related risks and opportunities, as well as disclosing general sustainability-related financial information. With the consultation closing at the end of this month, they are set to become effective in January 2024. 

While they are not mandatory, it is likely that businesses will voluntarily adopt the new reporting standards as non-financial reporting becomes common practice amongst businesses of all sizes. 

In this article, we turn to experts from across our RSM International Network to gain insights into the ISSB's new IFRS Sustainability Disclosure Standards and their implications for businesses, by asking three key questions. 

Q. What does the current environmental, social and governance (ESG) reporting landscape look like for businesses globally? 

Many European middle market firms will be facing formal reporting obligations through the Corporate Sustainability Reporting Directive (CSRD). The ISSB has been collaborating with EFRAG (European Financial Reporting Advisory Group) on the specific reporting requirements of the CSRD to ensure sufficient interoperability between the standards. Therefore, the direct additional effects of IFRS Sustainability Disclosure Standards on the European middle market are expected to be limited, according to Gidion Lont, Assistant manager of ESG Consulting in RSM Netherlands. Similarly, in Asia Pacific, Hong Kong and Singapore have been actively promoting ESG reporting for years. 

Dennis Lee, Partner at RSM Singapore says the country’s stock exchange has been imposing mandatory sustainability reporting since 2016. Amongst other incentives, Government agencies have been providing grants to accelerate the adoption and implementation of ESG strategies and roadmaps in the middle market. Although adoption levels among middle market companies are currently not high, pressure from stakeholders and the supply chain is expected to drive progress in this segment. 

Hong Kong’s stock exchange has also played a role in the country’s adoption of ESG reporting, with the 2012 Reporting ESG Guide introduced as ‘recommended practice’, notes Kenny Mak, Head of ESG at RSM Hong Kong. And in Australia, larger publicly listed corporates already report climate-related risks voluntarily thanks to the Task Force on Climate Related Financial Disclosures (TCFD), according to Jacob Elkhishin, Partner, Risk Advisory and ESG Services of RSM Australia. 

However, companies not already reporting on ESG may face challenges with data, processes, and systems, and the introduction of non-financial reporting structures creates an opportunity to ramp up the importance of ESG in strategic business planning in Australia. 

In the Middle East, Kareem Abu Eid, Partner and Sustainability Services expert at RSM Kuwait, says that a mixture of local regulations, foreign investors' pressure, or global operations have prompted non-financial disclosures. However, he believes that the standardisation of non-financial reporting will help to expedite momentum and enhance the role of best practices and benchmarking activities. 

Meanwhile, in the Americas, there is a mixed response. In North America, Alex Kotsopoulos, Partner at RSM Canada highlights that Canadian pension funds currently play a significant role in integrating ESG into their investment mandates. 

Whereas in South America, Paola Piña, Partner at RSM Chile says ESG reporting is still a ‘work in progress,’ with variations in maturity depending on the size of companies and industries: “Important differences in the state of maturity in ESG disclosure can be identified, depending on the size of the companies and the different industries,” she says. “For example, the mining industry in our country is one of the most advanced, because of the demanding regulation and the ESG performance expectations to which it must respond given its characteristics.” 

Q. It is clear that some countries and markets are more advanced than others when it comes to non-financial reporting. How prepared do you think middle-market businesses are for the new standard? Do they have a lot of work to do? 

There are varied responses across markets. While for some, these standards are expected to make very little change due to the advanced nature of non-financial reporting which already exists in their countries, others anticipate a not insignificant amount of legwork in order to get the right systems into place. 

Alex Kotsopoulos notes that the recent RSM US Middle Market Business Index: ESG Special Report explains just how seriously middle market firms within the US and Canada are taking sustainability and ESG reporting. The report found that 70% of middle-market companies in the US and Canada have formal plans or strategies regarding ESG initiatives – up from 66% last year. 

Similarly, in Hong Kong, 70% of middle-market companies have formal plans or strategies regarding ESG initiatives, according to Kenny Mak. And, while some companies in Hong Kong and China are more up-to-date and on board with ESG reporting because of the Listed Rule, he notes that this is not always the case: “ESG reporting and non-financial reporting are still not very common for non-listed companies, organisations, and authorities in Hong Kong or even in the rest of the globe.” 

This resonates with Latin America, as Paola Piña shares that a study by the International Labour Organization shows that very few firms – just 42% - believe non-financial reporting is an ‘essential’ corporate action. Therefore, middle market organisations here may face more work than others to prepare. 

Q. Companies globally are going to have to step up ahead of the implementation of IFRS Sustainability Disclosure Standards. What are the first steps middle market firms should take to best prepare for the new recommendations from the ISSB? 

While a varied level of preparation can be witnessed across the globe when it comes to readiness to share non-financial data, there are a number of essential steps that can be taken to help. Our experts suggest starting from the beginning, by gaining a clear understanding of both regulatory requirements, and your own organisation’s ESG data. 

The process of adhering to a new level of reporting can be daunting, acknowledges Gidion Lont. When it comes to new reporting procedures, ‘the most important advice is to just start.’ 

Gidion’s advice is to start by determining materiality, collecting data, and beginning with a limited number of indicators, as well as adopting a mentality of continuous improvement: “Companies are not going to get it complete, or right, the first time. Get (external) expertise on board where necessary and put in some time and resource to work on making the first steps.” 

Jacob Elkhishin agrees. “Understand what is important to your stakeholders, the data and information gaps, as well as resource gaps - both from a capacity and competency perspective,” he says. Meanwhile, Alex Kotsopoulos re-emphasises it is vital to understand regulatory requirements and stakeholder expectations. 

Kenny Mak advises an analysis of the ‘alignment of ESG and climate risk management with current business operations,’ and similarly, Dennis Lee highlights the importance of checking that existing frameworks and plans are aligned to the IFRS Sustainability Disclosure Standards. Whilst there could be additional disclosures and some slight variations in reporting baselines, by and large the reconfiguration efforts should be ‘manageable.’ 

Do not go it alone is the message from Paola Piña, who believes that collaboration with industry peers to address impending regulations and establish best practices is the route forward. “Middle market firms need, first, to understand their position in comparison to the practices required by the regulation, as well as in relation to their competitors. For this, collaboration is key and, in fact, deeply related to the spirit of the ESG ecosystem,” she says. “Through this, best practices can be established, allowing industries to have a better understanding of the ESG path, which practices can be applied and what priorities to begin with.” 


Gidion Lont
Gidion Lont
Assistant Manager, ESG Consulting
RSM Netherlands
Kenny Mak
Kenny Mak
Head of ESG
RSM Hong Kong
Kareem Abu Eid
Kareem Abu Eid
Partner - Sustainability Services
RSM Kuwait