Preface

The number of companies publishing sustainability reports is increasing every year, as well as improving in quality. Sustainability reporting standards are starting to become unified as well as becoming more decision-useful for different stakeholders. However, progress is still not sufficient to address the collective challenges our world is facing today. Each year, 30,000 square km of forests – the size of Switzerland – are lost. More than 1,000 species of animals go extinct per year, with 1Mn species threatened with extinction by the end of the century. Droughts, fires, and floods due to climate change are getting more severe, impacting livelihoods, health and displacement across the globe. According to UNHCR, almost 120 Mn people will be forcibly displaced due to war and climate change in 2023. Unsustainable development is rapidly degrading Earth’s capacity to sustain human well-being for current and future generations. The world is in a critical decade for addressing environmental and societal challenges.

There is need to look at the state of the world with clarity and compassion, and to act to address the urgent problems of climate change, ecological destruction, rising inequality and corruption. We need a collective awakening to recognize our interconnectedness and collective action to reverse the effects of human-led damage on the environment and society. All stakeholders must be part of the solution to create a regenerative culture in which all forms of life are valued and respected.

The UN Climate Change Conference COP27 held in November 2022 was a critical event for climate action. It resulted in countries agreeing to a set of decisions that reaffirmed their commitment to limit global temperature rise to pre-industrial levels (1.5 C). The conference brought together 45,000 participants across countries, businesses, investors, lawmakers, and vulnerable populations to find solutions and collaborate towards climate action. Despite progress, the recent climate report by the UN makes it clear that a quantum leap is required to address the ticking time-bomb of climate change. As UN Secretary-General António Guterres put it, “COP27 concludes with much homework and little time – our world needs climate action on all fronts – everything, everywhere, all at once.”

The IFRS Symposium held on February 2023 convened global businesses, investors, and policy makers in Montreal to discuss progress towards a global baseline of sustainability disclosures to inform investment decisions. The conference focused on sharing updates on the IFRS Sustainability Disclosure Standards, the first two parts (general requirements and climate-related disclosure requirements) being released by mid-2023. Stakeholders also addressed the need for capacity-building initiatives for sustainability-related reporting to accelerate adoption of a unified framework of sustainability reporting across borders. We shared the initial results of this years’ research results as well as an opinion paper on the importance of governance for sustainability at the conference.

Action and collaboration between companies, policymakers, investors, and consumers will be key to transforming our decision-making processes to meet these varied, global challenges. Business action towards climate change and Sustainable Development Goals is accelerating but is not sufficient. A shift in the mentality in how to address the sustainability efforts of the corporations is needed: Focusing on the opportunity to make a difference and embracing responsibility for potential influence over the whole value chain, rather than taking a selective and defensive approach to show that you are doing is good, to defend against negative publicity.

This should include ensuring boards and top management to have the skills, structures, and responsibility for sustainability, setting up governance mechanisms to provide guidance and oversight to sustainability, setting rigorous targets for material sustainability issues for the company, its supply chain, and the ecosystem. Furthermore, companies should craft purpose-driven, stakeholder-centric models to inform strategy and adopt continuous improvement and collaboration as a mindset throughout the sustainability journey to achieve targets.

Governance of sustainability should be prioritized if we are to drive real change. The ESG acronym shows a limited view of governance as an additional dimension of sustainability impact. Rather than a separate impact domain, governance is a framework on how guidance and oversight is provided over all decisions and actions that have economic, environmental, and social impacts. Current reporting practices on governance encompass issues such as anti-corruption, but the more important focus should be on how sustainability is governed – the responsibilities and structures that define how decisions on sustainability are made. This should include definition of G as a central, overarching category and requires looking at the whole with integrated thinking.

This year marks the 4th year of our research – Sustainability Governance Scorecard. Since 2019, we have been reviewing the financial and sustainability disclosures of 200 Global Sustainability Leaders from 7 countries through a governance lens to create a baseline for how the best companies in the world approach sustainability governance and to provide examples for the rest of the world to follow. While the sustainability performance of various companies is difficult to compare, as such performance is context specific, their approach to governance of sustainability efforts provides important insights for everyone.

There is no question about the urgency of companies to adopt sustainability management practices. Learning is happening and more companies are embarking on and accelerating progress towards sustainability. While there has been progress, it is critical for these companies to take initiative to further improve and for those behind to step-up on their approach to sustainability.

Our intention with this research is to improve the state of the world by speeding up peer learning from global leaders in sustainability. Here, we propose a framework that can be used by novices and global leaders in sustainability alike. We propose this framework as an ideal to move toward – it’s a process, not an event - it will take time. But we are running out of time and need to act fast. Looking at the sustainability journey and reporting practices with a governance lens can enable a company to assess its level of maturity and design its own journey by leveraging best practice examples from those companies who do it best.

We hope that the SG Scorecard will help improve the state of the world by speeding up peer learning from the global leaders.

Gizem Argüden Oskay