ESG & Sustainability

If you have not heard of ESG before it may be time to sit up and take notice. ESG stands for Environment Social and Governance. In recent years it has been a hot topic with both accounting standards setters as well as valuers.

Earlier this month the AASB the AASB published a voluntary AASB S1 General Requirements for Disclosure of Sustainability-related Financial Information and mandatory (opnly for some entities covered by Corporations Law 2001) AASB S2 Climate-related Disclosures .

AASB S1 requires the disclosure of information about all sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, its access to finance or cost of capital over the short, medium or long term.

AASB S2 requires an entity to disclose information about climate-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, its access to finance or cost of capital over the short, medium or long term

While application of these standards is voluntary for public and not-for-profit entities, this does not prohibit such disclosures being extended to public and NFP sector entities in the future.

The impact of ESG is also impacting valuation requirements with the IVSC recently publishing a Perspectives Paper. Perhaps the biggest impact for valuations going forward is the need for the valuer to be aware of relevant legislation and frameworks in relation to the environmental, social and governance factors impacting a valuation. These include -

• A10.01 The impact of significant ESG factors should be considered in determining the value of a company, asset or liability.

• A10.02 ESG factors may impact valuations both from a qualitative and quantitative perspective and may pose risks or opportunities that should be considered.