Transforming Emerging Markets with Enhanced Sustainability Reporting: A Look at the IFC and IFRS Foundation Partnership

The global emphasis on sustainability reporting has significantly increased, driven by the growing awareness of environmental, social, and governance (ESG) factors. For investors, sustainability reporting has become a crucial tool to assess a company’s long-term viability, risk management strategies, and alignment with global sustainability goals.  

Recognizing this, the International Finance Corporation (IFC), part of the World Bank Group and the International Financial Reporting Standards (IFRS) Foundation have recently joined forces to enhance sustainability reporting in emerging markets. This partnership aims to address the challenges these markets face in adopting robust sustainability standards, ultimately leading to more informed investment decisions and better resource allocation. 

Emerging markets are increasingly becoming critical players in the global economy, contributing to substantial portions of global growth. However, these markets often face unique challenges, including regulatory uncertainty, limited resources, and varying levels of transparency. Sustainability reporting in these regions is often inconsistent, with companies struggling to meet the reporting standards that are becoming the norm in more developed markets. 

Sustainability reporting is not just a regulatory obligation but a strategic tool that can drive better business outcomes, enhance transparency, and attract sustainable investments. By focusing on improving sustainability reporting in emerging markets, the partnership between the IFC and the IFRS Foundation is addressing a critical gap, enabling these economies to meet global investor expectations and contribute to global sustainable development.  

International Finance Corporation (IFC) 

The IFC has long been a driving force behind sustainable development in emerging markets. As a capacity-building and knowledge-sharing organization, the IFC brings valuable expertise to this partnership. Initiatives like “Beyond the Balance Sheet,” which aimed to improve sustainability reporting in emerging economies, have laid the groundwork for the current collaboration. By leveraging its experience, the IFC is well-positioned to help companies in these markets navigate the complexities of sustainability reporting. 

International Financial Reporting Standards (IFRS) Foundation 

The IFRS Foundation, through its International Sustainability Standards Board (ISSB), is committed to developing globally accepted standards for sustainability reporting. The launch of the IFRS Sustainability Disclosure Standards in June last year marked a significant milestone in this journey. These standards provide a comprehensive framework for sustainability-related disclosures, ensuring that the information is consistent, comparable, and reliable for investors worldwide. 

The partnership between the IFC and the IFRS Foundation is driven by a shared commitment to enhancing sustainability reporting in emerging markets and developing economies. The collaboration focuses on several key areas: 

1. Consistent Application of IFRS Sustainability Disclosure Standards

A primary objective of the partnership is to promote the consistent application of the IFRS Sustainability Disclosure Standards across emerging markets. By aligning these regions with global standards, the partnership aims to ensure that sustainability information is reliable and comparable, meeting the expectations of global investors. 

2. Capacity Building and Technical Assistance

The partnership will implement a series of capacity-building activities, including the development of new toolkits, research publications, and training programs. These initiatives are designed to help companies in emerging markets understand and apply sustainability reporting standards effectively. Additionally, the partnership will offer tailored support for specific jurisdictions, building on previous IFC initiatives in countries like Bangladesh and Jordan. 

3. Enhancing Knowledge Sharing and Support

Leveraging the IFC’s expertise as a knowledge-sharing organization, the partnership will focus on developing resources that address the unique challenges faced by companies in emerging markets. These resources will include technical assistance, best practices, and case studies that highlight successful sustainability reporting implementations. The goal is to equip companies with the tools and knowledge they need to improve their sustainability disclosures. 

4. Supporting Resilient Business Models

The IFC and the ISSB are committed to supporting the private sector’s transition towards more resilient and sustainable business models. By providing high-quality sustainability information, the partnership aims to meet the growing demand from global investors and stakeholders, ultimately contributing to the resilience and long-term success of businesses in emerging markets. 

For investors, the partnership between the IFC and the IFRS Foundation represents a significant step forward in the availability and reliability of sustainability data from emerging markets. With standardized reporting, investors will be able to: 

• Make Informed Decisions: Access to high-quality, comparable sustainability data allows investors to better assess the risks and opportunities associated with investments in emerging markets. 

• Align with Global Standards: The partnership promotes the adoption of global sustainability reporting standards, helping investors ensure that their investments are aligned with international best practices. 

• Support Sustainable Development: By investing in companies that adhere to robust sustainability reporting standards, investors can contribute to sustainable development in emerging markets, aligning their portfolios with broader ESG goals. 

While the partnership between the IFC and the IFRS Foundation is a significant step forward, there are still challenges to be addressed. These include: 

• Regulatory Divergence: Different regulatory environments in emerging markets may pose challenges to the uniform adoption of sustainability reporting standards. 

• Resource Constraints: Companies in emerging markets may face resource limitations, making it difficult to implement comprehensive sustainability reporting practices. 

• Cultural and Economic Differences: The diverse cultural and economic landscapes of emerging markets require careful consideration to ensure that sustainability reporting standards are relevant and applicable. 

The collaboration between the IFC and the IFRS Foundation marks a critical milestone in the evolution of sustainability reporting in emerging markets. By developing market-relevant standards, providing technical assistance, and promoting transparency, this partnership has the potential to significantly enhance the quality of sustainability reporting in these regions. For investors, this means better access to reliable ESG data, enabling more informed investment decisions and contributing to the sustainable development of emerging markets. 

As the global focus on sustainability continues to grow, the importance of robust and reliable sustainability reporting cannot be overstated. The partnership between the IFC and the IFRS Foundation is poised to play a crucial role in shaping the future of sustainability reporting in emerging markets, ultimately driving progress towards a more sustainable global economy. 

The proliferation of sustainability reporting standards can create challenges for companies, including increased complexity and costs. Today, there are more than 600 different sustainability reporting standards, frameworks, and guidelines worldwide. This fragmented landscape can make sustainability reporting a complex and repetitive process, leading to inconsistent and non-comparable data. 

However, the establishment of the ISSB and the introduction of IFRS S1 and S2 represent a significant step toward standardization. By providing a global baseline for sustainability reporting, these standards will help companies focus on the most material sustainability issues, reduce the burden of multiple reporting requirements, and enhance the quality and consistency of sustainability disclosures. 

For organizations, selecting the right sustainability reporting standards is a critical step toward improving environmental performance. It is essential to focus on standards that align with the organization’s sustainability and ESG materiality, are widely recognized, and provide clear guidance on key performance indicators (KPIs).

Some of the most important sustainability reporting standards include:

1. EU Corporate Sustainability Reporting Directive (CSRD): A comprehensive sustainability reporting framework for EU companies and large international companies doing business in the EU.
2. IFRS ISSB Standards: Global standards for sustainability and climate reporting that connect sustainability information with financial statements.
3. TCFD: A framework for disclosing climate-related financial risks, which is being integrated into the ISSB standards.
4. CDP: A global environmental disclosure system focused on climate change, forests, and water security.
5. GRI: A long-standing global framework for sustainability and impact reporting.
6. SASB: An industry-specific sustainability reporting framework that is now being integrated into the ISSB standards.
7. B Corp: A certification and set of standards for corporate social, environmental, and governance performance, particularly for small-to-medium companies.

Sustainability disclosure standards play a crucial role in shaping how companies report on their sustainability performance and how stakeholders evaluate these reports. The introduction of the IFRS Sustainability Disclosure Standards by the ISSB marks a significant milestone in the journey toward global standardization of sustainability reporting. These standards provide a comprehensive framework that connects sustainability information with financial reporting, making it easier for investors and other stakeholders to assess a company’s long-term value and resilience.

As sustainability reporting continues to evolve, companies that adopt these standards will be better positioned to meet stakeholder expectations, manage sustainability risks, and capitalize on opportunities that contribute to long-term success. By selecting and adhering to the right sustainability reporting standards, organizations can build trust, enhance their corporate reputation, and drive positive environmental and social outcomes.