Organisations play a vital role in any functioning economy, serving various purposes like the provision of goods and services, solving societal problems, and contributing to economic growth.
These entities are not isolated but rather interact with stakeholders, society, the economy, and the natural environment.
As a result, considering the influence of the external environment on their operations becomes crucial for their sustainable existence and decision-making processes.
Since R. Edward Freeman’s publication on stakeholder relationships, there has been increasing focus on the interrelationship between public and private organisations and the dynamic individuals or groups operating within and around them.
Understanding and managing these relationships have become essential for organisations seeking to thrive in a competitive landscape.
Sustainability Reporting Standards
The International Sustainability Standards Board (ISSB) recognized the impact of external factors on organisations, such as cash flows, access to finance, and cost of capital over the short, medium, and long term.
In response, they designed sustainability-related financial standards. These standards aim to guide users, particularly those making financial decisions like investments and financing, in understanding an organisation’s sustainability-related information.
As the world pursues a sustainable agenda, emerging economies, including Nigeria, have centred their economic growth plans around sustainable practices.
This approach involves transforming various sectors of the economy, increasing productivity, ensuring sustainable industrial development, and providing access to modern and reliable energy services.
The decisions made by organisations in Nigeria concerning sustainability are increasingly important to users of their financial reports. As a result, several strategic restructures have been made by major companies operating in Nigeria, emphasizing sustainability in their business models.
This shift demonstrates the importance of governance, board composition, diversity, employee treatment, human rights respect, and community and environmental considerations for investment and financing decisions.
The Nigerian Code of Corporate Governance and SEC Corporate Governance Guidelines
To promote sustainable reporting, the Financial Reporting Council of Nigeria issued the Nigerian Code of Corporate Governance (NCCG) in 2018.
Additionally, the Nigerian Securities and Exchange Commission (SEC) developed the SEC Corporate Governance Guidelines (SCGG) effective January 1, 2021.
These guidelines address disclosure requirements for the capital markets and enhance the accountability and transparency of organisations operating within the Nigerian market.
The International Sustainability Standards Board (ISSB) also introduced two sustainability-related financial standards: IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures, which become effective from January 1, 2024.
These standards apply to entities that prepare general-purpose financial statements and adhere to International Financial Reporting Standards (IFRS) or other Generally Accepted Accounting Principles or Practices (GAAP).
Also, they mandate a fair presentation of sustainability-related financial information, including risks and opportunities that could impact an organisation’s prospects in the short, medium, and long term.
Importance of Comprehensive Sustainability Reporting
The sustainability-related financial disclosures must not omit, misstate, or obscure any information that could influence users’ financial decisions.
Moreover, the information should be presented in a way that allows users to connect sustainability-related financial disclosures with other data within the financial statements.
The alignment of data and assumptions used for quantitative and qualitative information presented in financial statements with those in sustainability-related financial disclosures ensures reasonable and consistent decision-making by investors.
As public organisations in Nigeria adopt the newly issued sustainability reporting standards, and as sustainability-related risks and opportunities gain significance in their strategies, the nation’s intrinsic growth and development will accelerate, placing it firmly on the global economic stage.
Embracing sustainability reporting helps organisations navigate a changing landscape and contributes to the country’s long-term economic prosperity and well-being.
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