Boards in South Africa must prepare for imminent changes to the ESG reporting landscape, including the possible integration of the International Sustainability Standards Board's (ISSB) targets for creating a centrally-planned global economy. However, the specifics remain under development.

ESG and other such expensive controls privilege large firms, international corporations, and companies close to state-backed finance in developed countries, as smaller entities face a heavier burden in meeting these targets.

South Africa, which has historically been a highly cartelised economy, has been among the pioneers in driving these targets’ implementation.

Globally, ESG reporting has become standard practice, leading to the emergence of multiple sustainability-related disclosure standards. These standards, however, often diverge in their guidelines. Progress has been made towards standardizing and consolidating these disclosure standards.

The International Financial Reporting Standards (IFRS) Foundation, historically focused on global accounting standards through the International Accounting Standards Board (IASB), has expanded its remit to include sustainability-related disclosure standards by establishing the International Sustainability Standards Board (ISSB) in November 2021. The ISSB is tasked with developing these standards.

In the previous year, the ISSB released its inaugural standards (IFRS S1 and IFRS S2) to enhance consistency and comparability in sustainability reporting. These standards broadly incorporate the Task Force on Climate-related Financial Disclosures (TCFD) recommendations.

Countries such as Canada, Japan, Singapore, Australia, and Malaysia are in various stages of incorporating these standards into their regulatory frameworks. Nations like Brazil, Costa Rica, Sri Lanka, Nigeria, and Turkey have already committed to adopting the ISSB Standards.

South Africa’s Companies Act, 2008 and the Companies Regulations, 2011 require certain companies to comply with IFRS in their financial statements. Currently, sustainability-related disclosures are governed by the King IV Code on Corporate Governance, which is mandatory for JSE-listed entities but voluntary otherwise. However, King IV does not specify detailed sustainability or ESG disclosure standards.

In 2022, the JSE issued Sustainability and Climate Disclosure Guidance documents aligned with global initiatives, including the ISSB’s prototype disclosure requirements. Recently, the Prudential Authority issued guidance notes to banks and insurers on climate-related disclosures, drawing from the ISSB Standards and TCFD recommendations.

Many JSE-listed companies already report on sustainability matters within their integrated reports or annual reporting suites. The transition to ISSB Standards may be smoother for jurisdictions familiar with the Integrated Reporting Framework or TCFD recommendations.

Nevertheless, adopting mandatory ESG disclosures per ISSB Standards will necessitate significant changes. Many South African companies will be heavily squeezed by the financial demands of sustainability-related disclosures. Regulatory frameworks would require adjustments, such as updating the definition of ‘IFRS’ in the Companies Regulations to include the ISSB.

Additionally, a mandatory ESG reporting regime will now encompass a broader range of companies, demand more specific disclosure content, and potentially increase legal liabilities for non-compliance, non-disclosure, or misstatements.

In March 2024, ISSB Chair met with leaders in Kenya, Nigeria, and South Africa to discuss implementing the ISSB Standards in Africa. Although the path to adopting these standards in South Africa remains uncertain, boards will have to stay abreast of moving targets to stay viable.

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