The Sustainability Innovation Lab in Singapore will support businesses in adapting to new reporting requirements.
In a move to address sustainability reporting challenges, the Global Reporting Initiative (GRI) in partnership with the International Financial Reporting Standards (IFRS) Foundation launched the Sustainability Innovation Lab (SIL) on 20 November. The SIL will host research platforms that will examine sustainability reporting issues and provide solutions.
Eelco van der Enden, CEO of the GRI, told Regulation Asia that the landscape of sustainability reporting is evolving but causing confusion at the same time.
“With the introduction of the ISSB in November 2021, the landscape was seriously shaken up because it meant that under the auspices of the IFRS Foundation, sustainability reporting became more prominent,” he said.
“What the ISSB and GRI have tried to do with launch of SIL is explaining how this landscape works and how we can support businesses to adapt to this new reality,” he added.
He pointed out that the lab seeks to ensure easy compliance at a low cost as well as onboard professionals and stakeholders who need to provide additional information, issue warrants or offer legal insights necessary for report validation.
Emmanuel Faber, Chair of the ISSB Chair, told Regulation Asia that the SIL is designed to be open, allowing numerous partners to participate. He also highlighted that the platform would leverage the expertise of individuals beyond the scope of GRI and ISSB, with GRI being the founder and ISSB, which operates under the oversight of the IFRS Foundation, serving as the convening partner.
The lab, staffed with eight permanent members, will bring together global and local partners to advance capabilities for reporting using the GRI Standards and the IFRS Sustainability Disclosure Standards.
It will be based in Singapore, and supported by offices throughout Asia, given that 81% of listed companies in Asia-Pacific report with GRI, and the region showed strong interest in adopting the new ISSB Standards.
The ISSB’s standards were launched in June with the promise of delivering a comprehensive, accounting-based framework for climate- and sustainability-related disclosures that provides global investors with consistent, verifiable and decision-useful information.
The ISSB currently focuses on financial materiality rather than double materiality, while the GRI is a well-known double materiality advocate. Under double materiality, companies must report both on how their business is impacted by sustainability factors and how their activities impact society and the environment.
Faber highlighted the purpose of ISSB, emphasising its role in creating a standardised language for investors and capital providers. This, he explained, enables informed decision-making grounded in comprehensive ESG information.
“It’s about being able to allocate capital, to move capital towards transitioning towards more resilient business models—starting with a climate transition. It’s for companies to be able to encode these efforts in the financial statements because they have a language that is compatible. The idea is that we would serve both the debt capital providers – the banks, insurers, investors, and also the equity capital markets,” he added.
Explaining the rationale behind establishing SIL and collaborating with the IFRS Foundation, van der Enden said that there is a crucial need to extract precise information throughout the entire supply and value chain for effective sustainability report preparation and filing. This necessitates robust relationships with all business partners involved in the supply chain.
However, he noted that numerous professionals and suppliers in diverse sectors are not fully equipped for the ongoing transformation in the global supply and value chain, particularly concerning ESG issues.
Providing examples, he pointed out that in the legal profession, sustainability reports are a new field for most professionals. Similarly, for accountants responsible for assuring or validating these reports, this represents uncharted territory.
Unlike traditional accounting, which focuses on past financial history, sustainability reports involve addressing longer-term risk management issues. They instead adopt a forward-looking perspective and cover topics that traditional accountants may not have encountered extensively, such as greenhouse gas emissions, carbon emissions, human rights, diversity, equal pay, and indigenous rights.
“We received a lot of requests from the legal and accounting professions for support in understanding the landscape and major players,” said van der Enden.
He added that 70 million small and medium enterprises in Asia also need help on this front. They are engaged with large manufacturers serving clients worldwide and will need support in complying with the new ISSB standards, European standards, and emerging requirements from the US. Furthermore, they will be required to furnish specific information requested by their clients or act as reporters, adding complexity to their reporting obligations.
Van der Enden noted that the challenge is to onboard these smaller and medium enterprises in a way that ensures their understanding of the requirements, both as participants and potential reporters. This must be done without increasing their burden of compliance and cost, but rather by adding value to their business and enabling them to stay competitive, he added.
“There is quite a lack of understanding in some professions and in certain parts of the supply chain about what’s happening. That could be hampering the adoption of ISSB and understanding the place of GRI in this landscape. So, it’s all about a changing landscape and mandatory reporting that needs to be adopted by businesses, which has effects on the entire supply chain, and we are going to facilitate that transformation,” said van der Enden.
In July, van der Enden told ESG Investor he would “not be surprised” if the GRI was eventually absorbed by the ISSB and that consolidation might eventually become “unavoidable”.