29 July 2022

Our comments on the draft International Financial Reporting Standards global reporting standards

Following COP26 in late 2021, it became clear that - if the world was going to act on the promises it was making about getting to zero carbon by 2050 - a global baseline of sustainability-related financial disclosure standards was urgently needed.

As such, the International Sustainability Standards Board (ISSB) was established under the International Financial Reporting Standards (IFRS) Foundation with a mandate to create a global baseline that will facilitate like-to-like comparison of sustainability factors across reporting entities. This will usher in a much-needed, internationally recognised benchmark for those striving to be environmentally, socially and ethically responsible - and will also serve to highlight potential work required to reach Environmental, Social and Governance (ESG) targets.

At RightShip we’ve taken the opportunity to offer our opinion on the drafts, with our ESG Manager, Aish Iyer giving the guidance a thorough once-over and providing comments on the proposed:
 

  • Exposure Draft on IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information ([Draft] IFRS S1) and
  • Exposure Draft IFRS S2 Climate-related Disclosures ([Draft] IFRS S2 – Volume B66 Marine Transportation).


Pulling all the ESG strands together

With multiple ESG and sustainability disclosure frameworks and standards currently available to organisations around the world, at times it can feel overwhelming knowing how to choose the appropriate ESG framework to measure against.

These draft standards have been designed so sustainability related risks and opportunities are both assessed in relation to an entity’s interaction with natural resources, people and the planet.

But how does one value investments in social capital or justify return on heavy investments into future fuels or even building new vessels?

In a maritime context, for example, we would definitely like to see vessels with a more efficient design and an ability to use renewable fuels, as well as those which exhibit responsibility towards crew being appropriately and publicly recognised for the investments they make in people and their working environment.

Incorporating these previously ‘qualitative’ factors into an enterprise value calculation, no less, is a sophisticated, yet critical market requirement in a world faced with an urgent need to tackle climate change and social inequalities. It’s what the new standards are expecting to achieve.


Our key takeaways

  • Supply chain ESG needs to be recognised
        Marine transport accounts for over three quarters of global trade and movement in goods across the                world and a notable share - 3% - of global greenhouse gas emissions. Understanding the process of                  incorporating emissions from transport and social issues including crew management in sustainability-          linked risks and opportunities in the value chain, are essential to comply with the objectives the                          proposed standards have set out. It is imperative that entities recognise the importance of supply chain          ESG and meaningfully account for them in sustainability-related financial disclosures.

 

  • Clear definition of the constitution of a value chain
        The definition could differ from one entity to another. The proposed standards endeavour to bring about          greater transparency and comparability. Clarity around value chain constituents and an explicit inclusion          of transport related emissions, for example air, water and labour management, will work towards having          truly responsible value chains.The new standard aims to redefine long-term value through the inclusion            of ‘significant’ sustainability-related risks and opportunities. Guidance on incorporating what could be              considered less significant (tier 2 or long-term) opportunities and risks is just as important.
        These could be in the form of relevant long-term impact factors on enterprise value. For example, a                  reduction in Scope 3 emissions from an anticipated long-term move to lower emission fuels in maritime,          or slower than anticipated adoption of low-carbon fuels, can impact strategic sourcing plans andchange          supply chain ESG risk assessment.
 
  • Reasonable transition period needed for migration to this type of reporting
         Analysts looking to incorporate sustainability in their assessment of an organisation’s enterprise value             will benefit greatly from having sustainability-related financial disclosures released concurrently with               financial statements. Considering the challenges with data availability and data gathering in the                         sustainability sphere, we would expect a reasonable transition period, as has been the case with                       previous migrations in international financial reporting.
 
  • Collaboration and data sharing across the industry will be essential for success
        Collaboration and co-operation across industry participants – corporates, digital enablers, financial                  systems and other end-users – will enhance the adoption and implementation of the new standards.


We’re looking forward to the big reveal

Overall, the proposed standards are a much-needed step towards recognising the important connection between traditional financial disclosures and sustainability-related financial disclosures.

We hope that RightShip’s digital maritime platform will offer timely insights into emissions data for voyages, vessel safety, and crew welfare as well as measuring emissions at ports, all across the world.

With the ISSB expected to redeliberate the Exposure Drafts in the second half of 2022 based on feedback from stakeholders over the coming months, we’re excited to see the final IFRS Sustainability Disclosure Standards and look forward to enabling a safe, sustainable maritime environment that causes zero harm.